Spot gold has fluctuated by over $150 in the past week, marking the largest fluctuation since mid August 2020. On Monday, it surged to a peak of around $2144 and continued to decline. After the release of non-agricultural data last Friday (December 8th), spot gold accelerated its decline, hitting a low of 1994.56 and closing at $2004.41 per ounce.
Last Friday's employment data showed that the US economy created 199000 jobs last month, exceeding expectations, which poured cold water on the possibility of a rate cut in March. At the same time, the unemployment rate has dropped to 3.7%, lower than the 3.9% in October.
OANDA Senior Market Analyst Craig Erlam said he expects gold volatility to intensify in the near future. "For gold, this is indeed a very important week, and with US inflation and the Federal Reserve's interest rate decision next week, volatility may not disappear."
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Last Monday (December 4th), there were significant fluctuations in the COMEX gold and silver futures trading market, which attracted widespread attention from investors. At the beginning of the trading session, COMEX gold prices briefly surged to around $2052, but then fell. COMEX February gold futures closed down 2.27% at $2042.20 per ounce, while March silver futures also fell 3.67% to $24.907 per ounce. At the same time, spot gold performed well in daily trading, with fluctuations of nearly 6%, setting the largest fluctuation since September 2020, and ultimately closing at $2029.05 per ounce, a decrease of 2.07%.
Market analysis shows that there are multiple factors driving the rise in gold prices. Firstly, the market is generally betting that the Federal Reserve may implement interest rate cuts in the first half of next year. Once interest rates fall, it may weaken the position of the US dollar, making gold denominated in US dollars more attractive to international buyers, thereby increasing demand. Secondly, the intensification of geopolitical conflicts in the Middle East in the past two months has also become a factor supporting the rise in gold prices. In addition, the uncertainty factors next year will increase the demand for safe haven assets among investors. Most notably, global central banks purchased 800 tons of gold in the first three quarters of 2023, becoming a catalyst for the rise in gold prices. According to the latest survey by the World Gold Council, 24% of central banks plan to increase their gold reserves in the next 12 months.
Last Tuesday (December 5th), while the attractiveness of the US dollar continued to rise, gold plummeted for two consecutive days, violating its traditional safe haven position. Although hedging impulses are the main driving force and often boost interest in gold, traders are turning to the US dollar. Therefore, the spot gold trading price fell after reaching a daily high of $2041 per ounce. Spot gold closed down $2019.22 per ounce last Tuesday, a decrease of 0.49%. COMEX February gold futures closed 0.29% lower at $2036.30 per ounce. COMEX March silver futures closed 1.45% lower at $24.546 per ounce.
The data released last Tuesday showed that the ISM service industry PMI in November exceeded expectations, rising 52.7% from the previous value of 51.8. Meanwhile, according to a report from the US Bureau of Labor Statistics, JOLTS job vacancies decreased by 617000 in October to 8.73 million, the lowest level since March 2021. This number has reached its lowest level since March 2021.
"Gold has benefited from the market pricing of interest rate cuts and increased geopolitical tensions, boosting safe haven demand. However, gold prices may have entered the overbought zone, and it is well known that gold has prematurely reflected monetary policy expectations in the past two years. Although we anticipate that gold prices may have entered the overbought zone," said Suki Cooper, a precious metals analyst at Standard Chartered Bank in a recent report, "Although the Federal Reserve's next action is to cut interest rates, we do not expect it to happen immediately."
Last Wednesday (December 6th), spot gold successfully held the psychological support level of $2000/ounce after experiencing a decline in the first two trading days, closing up 0.30% at $2025.30/ounce. COMEX February gold futures closed up 0.57% at $2047.90 per ounce. In contrast, COMEX March silver futures fell 1.30% to close at $24.228 per ounce.
The data shows that the private employment figures for ADP in November were slightly weak, rising from 106000 to 103000, lower than the market expectation of 130000.
Economist and founder of Rosenberg Research&Associates Inc., David Rosenberg, believes that past record breaking prices are not the key, but rather the future direction of gold prices. Peter Grosskopf, the head of SCP Resource Finance LP, stated that predicting gold prices on a weekly or daily basis is "very difficult". He attributed the subsequent "significant increase" and "significant sell-off" this week to "technology trading". But he added that the sustained positive trend of gold is "undeniable" and he expects this situation to continue.
Prior to the release of US non farm payroll data, the weakening of the US dollar led to a slight rebound in gold prices last Thursday (December 7th), with traders hoping for signs of a weakening job market, thereby increasing the possibility of the Federal Reserve cutting interest rates as early as March next year. Last Thursday in the late trading session of the US market, spot gold closed at $2028.49 per ounce, slightly up $3.19 or 0.16%. It hit a daily high of $2039.94 per ounce and a low of $2020.15 per ounce.
According to data released by the US Department of Labor last Thursday, as of the week ending December 2nd, the number of initial jobless claims increased by 1000, seasonally adjusted to 220000. Due to holidays, the number of initial jobless claims fluctuates greatly at this time of year, making it difficult to obtain clear signals in the job market. Nevertheless, the labor market is slowing down.
Chris Gaffney, Global Markets President of EverBank, stated that "the market's expectations for interest rates are too far ahead." He added that the only risk facing metal prices next year is that "the Federal Reserve must maintain interest rates at high levels for a longer period of time.".
Outlook for this week
Last week, 15 Wall Street analysts participated in Kitco News's gold survey, and only 3 experts (or 20%) predicted that gold prices would rise in the next week. Eight analysts (53%) predict that gold prices will fall, while the remaining four experts (27%) hold a neutral attitude towards gold for the next week.
Meanwhile, Kitco News's online poll received a total of 729 votes, and despite the stock market's decline this week, market participants still maintain a bullish outlook for the next week. 428 retail investors (59%) expect gold prices to rise in the next week. Another 167 respondents (23%) expected prices to be lower, while 134 respondents (18%) held a neutral attitude towards the near future prospects of precious metals.
The latest survey shows that retail investors expect gold prices to trade around $2056 per ounce next week.
In the coming week, central banks around the world will once again become the focus, with the Federal Open Market Committee making interest rate decisions on Wednesday and the European Central Bank and Bank of England making decisions on Thursday. It is expected that all three will maintain interest rates unchanged, but investors will still be concerned about whether their tightening biases and predictions have changed.
Other noteworthy data include Tuesday's US Consumer Price Index (CPI), Wednesday's US Producer Price Index (PPI), and Friday's New York State Manufacturing Survey and PMI initial values.
Daniel Pavillonis, senior commodity broker at RJO Futures, said that the pause in the recent week's gold price rise coincided with the pause in the decline in yields. "The yield is no longer decreasing, and it may seem a bit excessive at first," he said. "I think gold as a market is questioning whether it has the drive to rise."
Pavillonis believes that geopolitics is the catalyst for oil prices to soar to historic highs. "The Red Sea situation, aircraft carriers, and some American ships were shot," he said. "Then it was quickly sold off, and now we're just fluctuating in a range." He added, "There are many reasons for this market to trade at a higher level, but in reality, it hasn't, even though it has always been at a higher level."
"My prediction for the next week will be a range fluctuation," Pavillonis said. "It looks like $2000 per ounce is like a magnet. We fall below it and then go back there. We thought we would rise above it, but we fell back to $2000 per ounce. I think that's the target, and that's where the market feels comfortable."
Adam Button, the head of currency strategy at Forexlive.com, believes that gold prices may rise in the coming week. He said, "After the tightening that started last week, the weakness of gold has been lifted, but the fundamentals are still intact."
Marc Chandler, Managing Director of Bannockburn Global Forex, said, "I hope gold prices will fall in the coming week." "Monday's significant reversal laid the technical tone. Breaking through the 2006 USD/oz mark could see $1985 USD/oz. In addition, the five G10 central banks will hold meetings in the next week, and most central banks may oppose the timing of significant rate cuts and early market discounting."
Dari Newsom, a senior market analyst at Barchart.com, has recently joined the bearish sentiment. He said, "February gold completed a crucial bearish reversal on the daily chart on Monday, December 4th, and the magnitude was significant." "The contract was in a consolidation state for most of the remaining time of the week, but still in a short-term downward trend."
Frank McGhee, Chief Precious Metals Trader at Alliance Financial, also expects gold prices to fall in the coming week as precious metals "continue to react to high trading volumes and depleted highs near $2150 per ounce.".
Kitco Senior Analyst Jim Wyckoff predicts that gold prices will trade within a range in the next week. Wyckoff said, "Late last week, bears gained some technical momentum and fluctuated sideways."
After a sensation, gold prices steadily declined last week, with spot gold falling by a cumulative 3.29% since Monday. COMEX February gold futures closed 1.56% lower at $2014.50 per ounce. Last week, spot gold fell by approximately 3.30%.
