(Kitco News) - The gold market is ending the week down sharply from last week’s record highs; however, analysts note that despite the selling pressure, there are no signs of panic in the marketplace. As a result, prices could consolidate in an elevated range.
Phillip Streible said that after seeing increased volatility in the marketplace, gold appears comfortable testing near-term resistance at $3,250 an ounce. Spot gold last traded at $3,250.80 an ounce, down 2% on the week.
“Gold has to clear $3,300 in order to take off again, and I don’t really know if the market is ready for that right now,” he said.
Gold prices are down more than 7% from last week’s high of $3,500 an ounce; however, prices are still up nearly 24% year to date. Despite the selling pressure, gold remains in a strong uptrend.
Michael Brown, Senior Research Strategist at Pepperstone, said in a note on Friday that gold’s correction is one he would “happily buy into, with the bull case for the yellow metal still firmly intact amid a volatile Trump administration and a slowing U.S. economy.”
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said he is also buying the dip in gold prices, but warned that prices still have room to move lower.
Hansen said he is watching Asian demand very closely next week. He pointed out that gold’s drop to $3,200 this week came as Chinese investors began a five-day holiday.
“Critical for gold will be how Chinese investors react during the first 24–48 hours following their return on Tuesday,” he said. “Will they panic and sell the gap opening lower, or will they view it as a great opportunity to accumulate?”
At the same time, Hansen noted that gold also needs a new catalyst to attract more Western demand.
“For now, I’m keeping an eye on $3,160–$3,170 for key support,” he said. “It would take a break below $2,950 for me to start reconsidering my bullish outlook on gold.”
For many analysts, a new catalyst to spark another run in the gold price could come from next week’s Federal Reserve monetary policy meeting.
U.S. economic data, while slowing, continues to highlight some resilient strength. Data showed that first-quarter GDP contracted by 0.3%; however, the drag was driven by higher imports, partly because companies invested in equipment to increase production.
It was also a disappointing week for the labor market, as the number of job openings dropped and private sector job growth was weaker than expected. However, those reports were overshadowed by better-than-expected official labor market data. On Friday, the U.S. Labor Department reported that the economy created 177,000 jobs last month, beating expectations.
The unemployment rate last month remained unchanged at 4.2%, and wage growth was relatively stable.
Economic data last week also showed that inflation pressures remain steady.
Some analysts have said that the economic data, taken together, could give the Federal Reserve room to signal a shift in its monetary policy stance next week. The central bank has maintained a solid neutral stance so far this year and has been clear that it is in no hurry to cut rates, as the labor market remains healthy and inflation risks remain elevated.
Markets are not expecting the Federal Reserve to cut rates next week, but it could send a dovish signal that cuts are coming.
“The data has certainly made the defense weaker in terms of keeping the rates where they are. Most investors believe that the Fed will take a U-turn on the current policy and start cutting rates,” said Naeem Aslam, Chief Investment Officer at Zaye Capital Markets. “In terms of gold prices, we saw a decent pullback, and now things are looking relatively cheaper.”
While gold continues to look attractive in this correction, Aslam added that along with the Federal Reserve’s monetary policy decision, markets will be sensitive to improving geopolitical sentiment as the Trump administration continues to negotiate potential trade deals.
“We also need to keep an eye on the tariff story, which is very important, and it seems like that steam has started to come out of it, and there are chances for de-escalation. So this means that upside may be limited here,” Aslam said.
Other analysts also believe that gold is at risk of moving lower. Carsten Fritsch, a precious metals analyst at Commerzbank, said that market expectations for rate cuts this year could be too high, and pared-back expectations could hurt gold prices.
“The market is currently expecting 90 basis points of interest rate cuts by the end of the year,” he said. “We consider these expectations to be exaggerated, meaning that there is potential for a setback for gold from this perspective.”
Economic data to watch next week:
Monday: ISM Services PMI
Wednesday: Federal Reserve monetary policy decision
Thursday: Bank of England monetary policy decision; Weekly jobless claims