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(Kitco News) – Growing expectations that the US Federal Reserve will slow the pace of rate hikes are creating new momentum in the gold market as prices ended the week above $1,800 an ounce. However, some analysts aren’t entirely convinced that new capital is coming to the market.
Analysts said they’re excited to see if the precious metal can attract some follow-up buying next week and break out solidly above its 200-day moving average, which it hasn’t done since February.
Not only is gold on the up from December, but its 7% rally in November was its best performance since May 2021.
Gold ends the week on a solid footing after the US government reported significant job gains and higher wages for November.
On Friday, the Bureau of Labor Statistics said 263,000 jobs were added in November; Economists expected job growth of 200,000. At the same time, wages rose 5.1% for the year, well above expectations.
Ole Hansen, head of commodity strategy at Saxo Bank, said sentiment is improving as traders are now looking to buy the dips rather than sell the rallies; However, he added that the market still had little bullish sentiment and that would need to change if prices were to consolidate at current levels.
“From a momentum perspective, we still have a little more work to do,” he said. “Momentum traders are still in no rush to get into gold.”
Kevin Grady, President of Phoenix Futures and Options, said gold’s future remains tied to the Federal Reserve and its aggressive monetary stance.
Gold’s month-end rally began in earnest on Wednesday after Federal Reserve Chair Jerome Powell said it may be appropriate for the Federal Reserve to slow the pace of December tightening.
However, Grady noted that despite the dovish bias, the Federal Reserve will continue to raise interest rates, which will keep many gold investors on the sidelines.
He added that he sees the current rally as further short-covering, which is unsustainable.
“They don’t want to go short gold if the Fed hikes rates 50 basis points,” he said. “But people aren’t telling us to go long gold at $1,800; they say we shouldn’t be short.”
Edward Moya, senior North American market analyst at OANDA, said he expected some consolidation in the near term given gold’s movement over the past week.
He added that next week will be relatively quiet for economic data and traders are likely to keep a low profile while awaiting the Federal Reserve’s December 14 monetary policy decision.
However, he added that he would look to buy gold as it tests the bottom of its new trading range.
“I’m a little bearish on gold right now, but if it falls $20 from here I’d be bullish,” he said.
Moya added that over the longer term, while employment data remains strong, other areas of the economy remain weak.
He said he expects demand to drop significantly after the holiday as consumers try to pay their bills. This environment will force the Federal Reserve to slow the pace of its rate hikes and even lead to the long-awaited turning point.
“Inflation will still be difficult and difficult to manage, but we see no risk of the Fed’s interest rate going up to 6%,” he said. “The Fed will still turn down and that will be good for gold.”
As the weekend begins, the CME Fed Watch tool shows that markets see a nearly 80% chance that the Federal Reserve will hike interest rates by 50 basis points later this month. The markets are still seeing an end rate between 5.0% and 5.25%.
Along with the economic data, market analysts are warning investors to keep an eye on the headlines surrounding next week’s OPEC+ spending decision.
The group of 23 oil-producing nations, led by Saudi Arabia and Russia, are due to meet on Sunday, with markets expecting the group to announce further production cuts, which would add to fears of a recession and higher inflation.
Next week’s data
Monday: ISM Services PMI, Reserve Bank of Australia policy decision
Wednesday: Bank of Canada monetary policy decision
Friday: Producer Price Index preliminary University of Michigan Consumer Sentiment
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