The Golden Outlook: A Critical Perspective on Short-Term Price Predictions

Gold prices closely hovered around the $2,500 mark last week. Spot gold ended the week at $2,495.86 an ounce, while the December 2024 futures contract settled at $2,524.60 an ounce, with the anticipated scale of interest rate cuts by the US Federal Reserve (Fed) in focus as the September Fed meeting approaches.

Domestically, SJC gold bars ended the week at VND 78.5-80.5 million/tael (buying – selling), slightly down from VND 79-81 million/tael a week earlier. SJC 9999 gold rings also edged lower to VND 77.3-78.6 million/tael (buying – selling), compared to VND 77.4-78.65 million/tael a week ago.

The latest data has left traders perplexed in predicting the extent of the Fed’s rate cut.

According to the US Labor Department, non-farm payrolls increased by 142,000 in August, lower than the 160,000 forecast in a Reuters survey. July’s job numbers were also revised downward to 89,000. However, the unemployment rate for August stood at 4.2%, in line with expectations but down from 4.3% in July.

As a result, traders are vigorously debating whether the Fed will lower interest rates by 50 basis points or 25 basis points, and this continues to impact the gold market.

FedWatch tool by CME indicates that traders now see a 73% chance that the US central bank will cut interest rates by 25 basis points (bps) this month, while the likelihood of a 50-bp reduction stands at 27%. A more substantial rate cut would benefit gold prices.

The Kitco News survey showed that industry experts were pessimistic about gold’s short-term prospects, while gold traders maintained an optimistic outlook for the metal.

“Prices will go down,” said Darin Newsom, senior analyst at Barchart.com. “Last week, I predicted that prices would move sideways, and indeed, the December gold futures contract traded within a narrow range last week. Looking ahead, with the FOMC meeting taking place next week, the December gold futures contract could dip slightly.” “The short-term trend on the daily gold price chart suggests a downward move, with support at $2,523.”

Phillip Streible, Chief Market Strategist at Blue Line Futures, expressed pessimism about gold prices for the coming week, but he noted that a prolonged period of monetary easing with consecutive 25-basis point rate cuts would eventually push gold prices higher.

Mark Leibovit of VR Metals/Resource Letter believed that gold could dip in the near term, despite his long-term bullish outlook for the metal.

“I’ve hedged my long-term buy positions in gold and silver ETFs,” said Leibovit, adding, “Prices will eventually move higher. But in the short term, a surge of $200 to $300 is unlikely.”

“Prices will go up,” stated Adrian Day, President of Adrian Day Asset Management. “Weaker-than-expected US job growth indicates that the Fed will likely deliver a significant rate cut at their meeting on September 17-18. A rate cut is almost certain to happen. However, a deep cut may not be in the cards. Overall, gold prices will hinge on the commentary surrounding any rate cut, as well as Chairman Jerome Powell’s press conference after the Fed meeting. Nonetheless, the gold market is likely to edge higher following the meeting.”

Kevin Grady, President of Phoenix Futures and Options, believes that everything currently revolves around the Fed.

“The question is: will they adjust rates by 25 or 50 basis points?” Grady remarked. “Just a few days ago, when the stock market took a significant hit, it was because the market felt that the Fed was unlikely to cut rates by 50 basis points and might opt for a 25-basis point reduction instead. I think the market wants a 50-basis point cut, and I believe that when people look at some of the things happening, especially the non-farm payroll data, they realize that the job market is a significant driver of the US economy, and that’s not where we want to be. When you examine all the data, the US economy is not in a fantastic place.” “It’s also important to note that the US job numbers have consistently been revised downward,” Grady added.

Grady advised, “Just watch where the bond yields are heading.” “The bond market always gets it right, and I think it has been ahead of the Fed by a wide margin. They are always the leaders. So, I believe the Fed will cut rates by 50 basis points.”

Nonetheless, he also mentioned that a dip in gold prices to the $2,300 level was not out of the question, and that wouldn’t be a bad thing, especially as we head into the US election cycle and enter a period of rate cuts. I think some long-term buy orders will be removed, and that’s healthy for the market.”

Grady noted that the stock market had been exuberant, particularly in the technology sector. “There’s an old saying that when everyone is on one side of the boat, it will tip over, and that’s what’s happening here,” he said. “I think many people are piling into the stock market, especially in the tech sector, believing that this rally will continue. But in my opinion, apart from stocks, the real opportunity lies in gold as the Fed starts cutting rates.” “There’s a lot of money on the sidelines that will have to flow into the stock market and the metals market,” he stated, while cautioning gold market participants against overreacting to price fluctuations at these elevated levels.

This week, out of the 14 Wall Street analysts participating in the Kitco News Gold Survey, only 4, or 29%, expected gold prices to rise this week, while 7 analysts, or 50%, predicted that prices would fall this week. The remaining 3 analysts, representing 21%, were neutral on gold in the near term.

Meanwhile, out of the 177 retail investors polled in the Main Street survey, a total of 100 participants, or 57%, looked for gold to climb in the week ahead. Contrarily, only 29 people, or 16%, expected gold to fall, while 48 voters, accounting for 27%, were neutral on gold in the short term.

Following a week dominated by US employment data, US inflation data will once again take center stage next week. The highlights include the release of the US CPI for August on Wednesday morning (September 11), as well as the ECB’s interest rate decision on Thursday morning (September 12), with markets anticipating a 25-basis point rate cut by the ECB.

Thursday (September 12) will also witness the release of US PPI data for August, along with the weekly jobless claims figures.

Reference: Kitco News