By Neils Christensen, Kitco News
Commodity analysts remain extremely bullish on gold over the long term; however, as the summer trading season kicks off, investors should not expect to see a breakout rally anytime soon.
Despite the positive sentiment, gold remains caught in a relatively narrow trading range. It has been unable to hold sustainable gains above $2,350 an ounce. On the downside, the precious metal has managed to hold support at around $2,300 an ounce.
Despite a solid start to the week, gold is heading into the weekend with a loss. August gold futures last traded at $2,331.80 an ounce, down 0.7% from last Friday.
Chantelle Schieven, Head of Research at Capitalight Research, said investors should brace for higher volatility in the gold market. She explained that traditionally, summer markets see lower liquidity, which can generate higher volatility. At the same time, market uncertainty remains extremely elevated as markets try to guess the Federal Reserve’s next move.
“Gold is kind of stuck here, and it's reacting to everything because we just don’t know what the Federal Reserve is going to do,” she said. “Every piece of data that comes outside of expectations has been enough to shift interest rate expectations back and forth, driving gold up and down.”
Although gold is treading water, Schieven said that it is important to pay attention to the broader landscape. She said gold has established a solid floor around $2,280 an ounce. She added that she is looking for the Federal Reserve to cut interest rates in September to support the economy, even as inflation pressures remain elevated.
“The big takeaway I have gotten from the Federal Reserve’s latest comments is that they are not as worried about inflation and are now shifting their focus to the labor market,” she said. “Underlying activity in the labor market is weak, and that will prompt the Federal Reserve to cut rates after the summer.”
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said he expects gold to remain well-supported in the near term as traders use the precious metal to hedge their positions ahead of their summer vacations.
However, Aslam added that he doesn’t see any breakout on the horizon.
“We continue to maintain our stance that the path of the least resistance would continue to remain for consolidation unless we experience more noise from the FOMC members,” he said.
Although gold has been unable to hold gains above $2,350 for the last five weeks, David Morrison, Senior Market Analyst at Trade Nation, said he remains constructive on gold.
He noted that the market’s consolidation has taken a lot of the froth out of the market.
“The recent moves in gold look quite constructive despite today’s sell-off. The metal has been grinding higher ever since the sell-off two weeks ago following the strong payroll report. Support around $2,300 is holding, and the daily MACD has leveled out just below neutral levels and looks to be turning higher,” Morrison said in a comment to Kitco. “The large swings that we’re now seeing in both gold and silver are exactly the kind of gyrations to expect ahead of a big move. These will be exacerbated as we get further into the summer, as trading volumes get thinner."
However, not all analysts are optimistic that gold can maintain these elevated levels. Barbara Lambrecht, Commodity Analyst at Commerzbank, said the Federal Reserve’s reluctance to signal the start of a new easing cycle.
“As the first interest rate cut in the US will probably not take place until the end of the year, further upside potential is likely to be limited,” said Lambrecht in a note Friday. “What's more, gold ETFs have recently recorded renewed outflows. It is, therefore also worth taking a look at the market positioning of speculative financial investors after their net long positions rose to their highest level since spring 2020 in the last reporting week. The high optimism of these investors could lead to a setback in the gold price.”
Although the economic calendar is a little light next week, there will be enough reports to create some volatility in gold. The focus next week will be on Friday, the Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred inflation gauge.
Some analysts have said that weak inflation data could solidify a September rate cut, which would support gold prices.
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