Even though gold was getting beaten up last Friday, analysts were still optimistic that the precious metal was going to return to its key $1,500 level soon.
Gold fell more than 1% on Friday (10/11/19) with December Comex gold futures last trading near two-week lows at $1,487.70 an ounce.
Upbeat risk appetite was driving the equity markets higher and pressuring gold lower as investors awaited the announcement of a possible partial trade deal between the U.S. and China.
One of the biggest market movers on Friday was the optimism portrayed by U.S. President Trump ahead of his meeting with Chinese Vice Premier Liu He at the White House on Friday afternoon.
Trump tweeted: “Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!”
Despite a major selloff in gold, analysts remain confident that gold will rise back up to its key $1,500 level and possibly test the $1,525 resistance.
"Gold will probably return to a better position this week after the Friday 'get me out for the weekend' crowd finishes the stops loss and margin selling … Gold will eventually return to the over $1,500 area in the next few weeks," RBC Wealth Management managing director George Gero told Kitco News on Friday.
Technicals will also help gold this week, said Kitco senior technical analyst Jim Wyckoff.
"Bargain hunters will step in to buy the dip in prices. Charts are still overall bullish and there are still geopolitical matters that could quickly move to the front burner of the marketplace and support safe-haven gold and silver," Wyckoff explained.
If gold makes it above $1,525 an ounce, investors would want to be long gold, RJO Futures senior market strategist Phillip Streible said.
"Say the trade deal falls apart, geopolitical tensions increase, economic data weaken, gold futures will be right back up there. And if it gets over $1,525, you'd want to be long because we’ll be targeting that $1,565 again."
Geopolitical risks are not going away
Brexit developments also brought some major optimism back into the marketplace on news that Britain and the EU are scheduled to hold “intense" talks on the Brexit deal.
European Union's chief negotiator Michel Barnier and his British counterpart Stephen Barclay described earlier talks as "constructive," giving markets hope as the U.K.'s departure date nears.
Yet, aside from some good Brexit news, there is still an array of unresolved geopolitical issues weighing on the market.
"Anywhere investors look there is a new worry, whether it is Iran, Middle East, Turkey, economics, global slowdown and some of that is anti-inflationary," Gero said. "Investors should see if good Brexit news continues, and look for currency manipulation language in U.S.-China trade talks, agricultural purchases, and Chinese reaction to tariff talks."
Any new geopolitical flare-up could boost gold up very quickly, Wyckoff pointed out.
"There are still too many geopolitical events that could dampen trader enthusiasm. Slowing world economic growth, U.S.-Iran, U.S.-North Korea, U.S.-China tensions, Brexit," he said.
Friday afternoon (10/11), markets were already busy digesting the news that 3,000 personnel are either being deployed or their missions are being extended in the Middle East "to assure and enhance the defence of Saudi Arabia," according to the Pentagon.
There was also news that Turkey intensified strikes on Kurdish militia in northeast Syria as the UN stated that around 100,000 people have left their homes in the face of the Turkish military incursion.
"The humanitarian impact is already being felt. An estimated 100,000 people have already left their homes," the UN said in a statement.
Federal Reserve sounding more hawkish
Markets are pricing in a lesser chance of a rate cut in October, with the latest estimates from the CME FedWatch Tool projecting a 67% chance of a cut versus the 87% chance just a couple of days ago.
The latest hawkish speaker was the Dallas Federal Reserve Bank President Robert Kaplan, who said that it was important to keep an “open mind” on whether more easing is needed.
"It is my intention to take some time to carefully monitor economic developments … I intend to avoid being rigid or predetermined from here, and plan to remain highly vigilant and keep an open mind as to whether further action on the federal funds rate is appropriate,” Kaplan said last Thursday.
Kaplan's statement has led to some readjustment of rate cut expectations, said Melek.
"We had Kaplan yesterday tell the market that there is no great impetus to do a lot on the monetary front to stimulate the economy. He negated the whole idea that inflation was below expectations," Melek pointed out.
Fed could delay easing and that is a negative for gold, added Gero. “Some Fed speakers, like Kaplan, have been more hawkish than usual. I’m presuming that the Fed has access to more numbers than they publish," he said.
Data to watch
This week's biggest data release will be the U.S. retail sales on Wednesday, which are estimated to come in at 0.3% in September. The U.S. Beige book is also scheduled for publication on Wednesday.
"Retail sales are a key measure of optimism. Any weakness there should help gold,” said Melek.
Other key data sets to watch include NY Empire State manufacturing index out on Tuesday and Thursday's slate of numbers such as U.S. housing data, industrial production, and the Philly Fed manufacturing index.
"Empire manufacturing — that's October data, very important. We are going to see if the weakness continues to translate into the latter part of the year," Melek added.
Source: Kitco News