Gold rallied strongly on Friday as markets raised bets on a slower tightening cycle after the Fed’s November meeting. Analysts are now looking closely at next week’s U.S. Q3 GDP data and earnings reports to get a better look at the state of the U.S. economy.
“This got investors really excited”
cryptocoin.com As you follow, December gold futures rose more than $20 on Friday. It last traded at $1,657.80 after hitting a two-year low. Thus, it almost broke the key support level at $1,620 earlier in the week.
The Wall Street Journal reported that the Fed will discuss the extent of future rate hikes after the widely expected 75 basis point increase in November. After that, the market’s reconsideration of interest rate hike expectations triggered the rise. Edward Moya, senior market analyst at OANDA, comments:
The idea that we could see the Fed debating whether to switch to a slower pace of tightening has really excited investors. Prior to Friday’s news, markets had expected an increase of 75 bps in November and 75 bps in December. Now, if the Fed argues, it could easily justify the half-point change in December. Plus, it’s likely that the US economy is starting to see the impact of the first rate hikes.
“Next week is critical for gold price”
Edward Moya finds Friday’s rally impressive. Gold held the $1,620 level after a significant pivot on rate hike expectations. Moya continues, commenting:
Gold may have missed the bullet here. Next week is critical for earnings season. There is a lot of market potential for volatility. I’m leaning towards the upside for the week ahead. We’ll likely see support for the Fed’s downshift idea.
Edward Moya is keeping a close eye on next week’s third-quarter GDP data scheduled for Thursday. Market consensus forecasts are for growth to pick up to 2.1% after two negative quarters. The analyst makes the following statement:
GDP data is a big wildcard. After a series of two bad quarters we need to turn positive. There’s a lot going on here that can complicate things. The current risk is that something will break for the economy.
“Technically speaking, the gold price is still in a downtrend”
According to Walsh Trading co-director Sean Lusk, technically we better stay here. Otherwise, the analyst predicts prices will drop another 5% to $1,560, then $1,470-80. According to Lusk, that’s what’s technically taking shape. However, from a bargaining standpoint, he notes that gold has experienced a six-month decline after hitting a high of over $2,000 in March. Therefore, “What will happen when it’s over? How long is enough before you see stabilization?” he asks. The analyst continues his statements as follows:
There is a risk that gold will drop another $100 before it bottoms out. The $1,620 level should stay in the near term. There is a potential double bottom on the charts. Investors sell to rallies. We hit rock bottom in the short run. That’s why I’m going up next week. But all bets are on the Fed meeting in November.
“We will see gold react slowly”
Everett Millman, precious metals specialist at Gainesville Coins, says gold is currently in uncharted territory. He points out that gold has been well below some key trading levels since earlier this year. Millman explains his views on the subject as follows:
It will be interesting to watch how quickly these higher interest rates drive inflation down. Higher interest rates have a negative effect on the gold price. However, interest rates as high as 5% are still below the inflation level. So real interest rates are still negative. If the Fed returns next year, we will see gold react slowly.
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Another unknown to watch is China. Because, it has decided to postpone the publication of the macroeconomic indicators, which are planned to be published this week, which includes the third quarter GDP data. Millman has this to say on the subject:
China is becoming less transparent and delaying reporting on economic data. I’m tracking how long this delay will last. If we go a month or more without data from China, a major red flag is possible driving additional safe harbor flows.
Next week’s macro data
- Tuesday: CB consumer confidence, Janet Yellen speech
- Wednesday: US new home sales, Bank of Canada rate decision
- Thursday: European Central Bank rate decision, US jobless claims, US Q3 GDP, durable goods orders
- Friday: US PCE price index, US pending home sales
