(Kitco News) Gold staged a strong rally on Friday as markets increased bets on a slower tightening cycle from the Federal Reserve after the November meeting. Analysts are now paying close attention to third-quarter US GDP data and next week’s earnings reports to get a better look at the state of the US economy.
December gold futures rose more than $20 on the day and last traded at $1,657.80 an ounce after hitting a new two-year low and nearly breaking above the key support level at $1,620 earlier in the week.
The upward move was sparked by the market’s reassessment of its rate hike expectations after the Wall Street Journal reported that the Fed would debate the size of future rate hikes following its widely expected hike of 75 basis points in November.
“The idea that we might see the Fed debating whether or not to slow the pace of tightening has really excited investors,” Edward Moya, senior market analyst at OANDA, told Kitco News.
Prior to Friday’s news, markets were expecting a 75 basis point hike in November and another 75 basis points in December. Now, if the Fed is debating, that could easily warrant a half-point change instead in December. Additionally, the U.S. economy may begin to feel the impact of early rate hikes, Moya pointed out.
“Today’s rally is impressive. Gold held the $1,620 level after a major pivot on rate hike expectations. Gold might have dodged the bullet here. Next week is critical for earnings season,” he said. “Lots of volatility potential in the market. I’m leaning towards an uptrend for next week. We could probably see the idea of a sustained Fed downgrade.”
Moya is paying close attention to next week’s third quarter GDP data, due out on Thursday. Market consensus calls expect growth to recover to 2.1% after two negative quarters.
“The GDP data is a big wild card. We’re supposed to turn positive after a streak of two bad quarters. There’s a lot that could complicate what’s going on here. The risk now is that something breaks for the economy,” Moya noted. .
From a technical perspective, gold is still in a downtrend and the risk is on the downside.
“Technically, we better hold here or prices could drop another 5% to $1,560 and then to $1,470-$80. That’s what’s technically shaping up,” Walsh co-director Sean Lusk said. Trading, at Kitco News. “But from a trading perspective, gold has had a six-month washout after hitting a high of over $2,000 an ounce in March. When does that end? How much is it enough before seeing stabilization?”
There is a risk that gold will drop another $100 before it bottoms out, Lusk warned. “The $1620 level needs to hold in the near term – a potential double bottom on the charts. Investors have been selling in rallies. bets are off ahead of the Fed meeting in November,” he said.
Gold is in uncharted territory at the moment, said Gainesville Coins precious metals expert Everett Millman, noting that gold is well below some key trading levels from earlier this year.
“It will be interesting to see how quickly these higher rates bring inflation down. Even though higher rates are negative for gold, rates as high as 5% are still below the level of inflation, which means real rates are still negative. So if the Fed pivots next year, we’ll see gold gradually react,” Millman told Kitco News.
TIME TO VOTE: Where is #gold headed next week? #kitconews #kitcopoll
— Kitco NEWS (@KitcoNewsNOW) October 20, 2022
Another unknown to watch is China and its decision to delay the release of its macroeconomic indicators due out this week, which included its third-quarter GDP data.
“China is less transparent and delaying reporting on economic data. I’m watching how long this delay lasts. If we go a month or more without getting data from China, that could be a big red flag that leads to further shelter .flow,” Millman added.
Next week’s macro data
Tuesday: CB Consumer Confidence, Yellen speaks
Wednesday: US new home sales, Bank of Canada rate decision
Thursday: European Central Bank Rate Decision, US Unemployment Insurance Claims, US Q3 GDP, Durable Goods Orders
Friday: US PCE price index, US pending home sales
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.
#Gold #price #dodges #bullet #chance #breakout