Fed signals spark gold surge to two-week high, analysts neutral on gold prices next week
On Friday (November 17), gold prices hit a two-week high due to signals from the Federal Reserve and weak demand for the U.S. dollar.
(Spot gold trend chart)
Spot gold closed down 0.03% at $1,980.65 per ounce.
The settlement price of COMEX December gold futures closed down 0.13% at $1,984.70 per ounce, up 2.42% this week.
The settlement price of COMEX December silver futures closed down 0.34% at $23.852 per ounce, up 7.05% this week.
[Market News Analysis]
Gold prices rose slightly on Friday and are currently trading at $1,980 an ounce after hitting a high of $1,995 an ounce. Hawkish comments from Federal Reserve officials and a pickup in Treasury yields kept prices from rising after strong U.S. housing data. U.S. Treasuries edged higher.
Monthly data released by the U.S. Census Bureau on Friday showed that housing starts increased 1.9% in October from a revised 3.1% in September, while building permits increased 1.1% over the same period, after falling 4.5% previously.
Boston Fed Chair Susan Collins said on Friday she observed evidence that financial conditions remain favorable to the Fed and welcomed the recent cooling in inflation. However, she then appeared to spook markets by saying she would not abandon further tightening.
Elsewhere, U.S. bond yields edged higher. The 2-year yield is 4.91%, and the 5-year and 10-year yields are 4.46% and 4.45% respectively. In terms of expectations, the market continues to price in expectations that the Federal Reserve will not raise interest rates in December.
The market is currently pricing in the possibility of an interest rate cut in the first half of 2024, so gold prices are still expected to post their first rise in three weeks. Gold prices moved higher for a second day in a row, marking the fourth day of gains in the previous five days and retesting near two-week highs. In addition, the market is currently pricing in the possibility of a rate cut in the first half of 2024. That in turn dragged the benchmark 10-year Treasury yield to more than two-month lows and was seen supporting non-yielding bonds.
Meanwhile, expectations for a dovish Fed failed to help the dollar stage any meaningful rebound from its lowest levels since September 1, which it hit on Tuesday.
A U.S. consumer price index report released earlier this week showed consumer inflation cooling faster than expected, while Thursday’s U.S. jobless claims data suggested a cooling labor market.
In addition, the recent collapse in oil prices is expected to have a deflationary effect, which will bring the Fed closer to its 2% target and soften its hawkish stance.
This week, a number of influential Fed officials acknowledged progress in containing inflation, reinforcing the view that policy tightening could soon end.
Commerzbank predicts that gold prices will continue to exceed the $2,000/ounce mark by the middle of next year. Economists at Commerzbank analyzed the outlook for gold, saying, “The upside potential for gold prices may be exhausted in the short term. U.S. inflation data was unexpectedly tame, making an (eventual) Fed rate hike in December unlikely.” . Nonetheless, it may take some time for the market to completely turn around and start speculating about imminent U.S. interest rate cuts. In other words, the recovery in the gold market is unlikely to be sustained. We expect gold prices to continue to exceed $2,000 per ounce by the middle of next year. close.”
This week, 12 Wall Street analysts participated in the Kitco News gold survey. Like last week, three experts (25%) expect gold prices to rise next week, but this week only one expert (8%) predicts gold prices will fall. An overwhelming majority (67%) are neutral on gold in the week ahead.
Meanwhile, Kitco’s online poll generated a total of 595 votes, with market participants taking a more optimistic tone than last week’s survey. 394 retail investors, or 66%, expect gold prices to rise next week. Another 125 respondents, or 21%, expect lower prices, while 76 respondents, or 13%, are neutral on the precious metal’s near-term prospects.
Next week will be a short week of trading and economic data, as Thursday is the U.S. Thanksgiving holiday, meaning much of the activity will be compressed into the first three days. Highlights include the release of the latest FOMC minutes and October existing home sales data on Tuesday, followed by October durable goods data, November University of Michigan consumer sentiment data and weekly jobless claims on Wednesday.