DBP - Gold's Roller Coaster: Surprises Signals And Speculation In The Precious Metal Market

2023-11-07 03:02:36 ET

Summary

• Gold prices remain stable after a positive week, with focus on the Fed's decision and the October Jobs Report.
• Gold initially surged to $2000 per ounce in response to weak job numbers and potential economic instability.
• Stocks rallied, suggesting the Fed might not feel compelled to cut rates, and gold spot prices slipped but remained healthy.

Fundamentals

Gold prices showed relative stability in Friday's (Nov. 3) trading, following a flurry of activity in response to the morning's labor market data. This comes at the end of a positive week for the precious metal. The market's focus had largely been on Wednesday's Fed Day and the October Jobs Report on Friday. Consequently, it's not surprising that the gold market appeared relatively calm in the first half of the week.

Last week Monday saw spot gold prices hovering around the crucial $2000 per ounce mark, maintaining a mostly flat trajectory. Tuesday, however, witnessed a decline in gold prices due to persistent downward pressure, which was expected. Many traders and money managers consider the $2000 level a significant barrier, and as such, they may opt to sell their long-gold positions to lock in profits as the precious metal approaches this level. Nonetheless, gold remained robust, closing Tuesday's markets with spot bids at $1980 per ounce.

When the highly anticipated midweek session arrived, the announcements and Q&A press conference following the conclusion of the FOMC meeting had little impact on gold trading. The Fed had already led investors to believe that there would be no further rate hikes before Thanksgiving, and possibly not even until the end of 2023. As a result, when the FOMC officially confirmed this unanimous decision, gold prices remained relatively steady. There was a brief overnight boost to $1990 per ounce, but these gains had dissipated by the time New York's markets opened. Fed Chair Powell's post-meeting statements maintained the central bank's non-committal stance on interest rate increases.

The data released on Wednesday morning turned out to be more interesting than expected. The ISM Manufacturing Index for October indicated an unexpected contraction in the US industrial sector. While not a definitive sign of the US economy faltering due to the Fed's aggressive interest rate hikes to combat inflation, it was interpreted as such by many investors.

This sense of unease likely contributed to the volatility seen in the gold market on Friday. The October Jobs Report painted a picture of an unexpectedly fragile US labor market, with job numbers falling short of expectations (150K vs. 180K) and last month's impressive figures being significantly revised downward. The national unemployment rate also unexpectedly increased. In response to these signals of potential economic instability, gold prices initially surged to $2000 per ounce, and the US Dollar weakened. The bond market rallied, causing yields on the 10-year US Treasury Note to drop back toward +4.5%.

The prevailing sentiment was clear: If the US economy was indeed at risk of contracting due to the higher interest rate environment and tighter financial conditions, the FOMC might be pressured to expedite the end of its rate-hiking cycle and consider rate cuts sooner than anticipated. However, as the New York equity markets opened for trading, stocks rallied, with the S&P 500 and NASDAQ both showing gains of over +1%, and the Dow Jones Industrial poised for its strongest week of the year. This painted a less bleak picture, suggesting that the Fed might not feel compelled to act. Interestingly, some of the stock market rally might have been driven by the belief that the Fed would be prompted to cut rates.

As the initial enthusiasm of the pre-market gold rally waned, gold spot prices slipped but remained healthy. Unless there is a significant downturn in the afternoon at the time of writing, prices are expected to maintain support above $1990 per ounce, providing a solid foundation for gold's performance next week.

Looking ahead, gold and other risk-sensitive assets will continue to be influenced by headlines and statements from the Fed rather than macroeconomic data inputs. The data calendar for the upcoming week is relatively sparse, with Consumer Sentiment and possibly the weekly Jobless Claims numbers being the most significant factors to watch.

GOLD: Weekly Standard Deviation Report

Nov. 04, 2023 3:49 PM ET

Summary

• Gold futures market shows bullish short-term trend and price momentum.
• Traders advised to consider taking profits at specific price levels and manage positions accordingly.
• Cycle analysis suggests potential profit-taking opportunities in the near future.

I provide below an analysis of the monthly trend momentum, monthly price momentum, and monthly price indicators in the gold futures market.

1. Monthly Trend Momentum: As of 11.1.23, the gold futures contract concluded with a closing price of 1994, an important development to note. Significantly, this closing price exceeded the 9-day Simple Moving Average ((SMA)) of 1981. This occurrence is a robust confirmation of a bullish trend momentum currently prevalent in the market. However, it is essential to exercise caution, as a close below 1981 would lead to a shift from a bullish monthly trend to a neutral one.

2. Monthly Price Momentum: Regarding the monthly price momentum, the market exhibited strength by closing above the VC Monthly Price Momentum Indicator, which stands at 1946. This particular observation reinforces the notion of bullish price momentum. Nevertheless, it is paramount to remain attentive, as a closure below the VC Monthly Price Momentum Indicator could reverse the bullish signal to neutral, warranting a reevaluation of the market sentiment.

3. Monthly Price Indicator: For those actively engaged in trading, it is advisable to consider specific strategies. In cases where short positions are held, it is prudent to contemplate taking profits during corrective movements at levels between 1872 and 1750. Conversely, for those contemplating long positions, it is essential to monitor the market for potential weekly reversal stop signals.

Furthermore, long positions can utilize the 1750 level as a Monthly Stop Close Only and Good Till Cancelled order. Additionally, traders are encouraged to explore profit-taking opportunities as the market approaches the 2068 - 2142 price range during the month.

Lastly, please mark your calendars for the next cycle due on 11.15.23, as it is a significant date for strategic planning purposes.

In conclusion, the current outlook suggests a bullish trend in the gold futures market. However, prudent risk management and vigilance are vital to adapt to potential market shifts. Should you require further analysis or clarification on any aspect of this report, please do not hesitate to contact me.

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