Wall Street bears turn tail after gold rises to $5,100/oz, Main Street bullishness unchanged as Iran tensions mount

NEW YORK (February 21) Gold prices saw sustained weakness in the early days of the week as the Chinese traders celebrating the Lunar New Year were clearly missed, but after successfully reclaiming $5,000 support, a late-week surge in geopolitical tensions saw renewed safe-haven demand push it all the way back to $5,100 per ounce.

Spot gold kicked off the week trading at $5,022.85 per ounce, but the market lacked conviction in the early going, with gold prices struggling to hold the $5,000 per ounce support level in overnight trading on Sunday, before ultimately succumbing to selling pressure just after 8:00 a.m. Monday morning. 

The North American open pushed prices back within a few dollars of $5,000, but no further, and Monday night’s Asian open saw strong downward pressure on the yellow metal, with spot falling to $4,936 per ounce by 7:45, and all the way to $4,879 per ounce early Tuesday morning. 

The European session breathed some life into gold, with the spot price hitting a succession of higher highs, topping out around $4,943 per ounce by 7:15 a.m. Eastern, but then North America woke up and drove the yellow metal sharply lower, bouncing at $4,870 per ounce by 8:45 a.m., and setting the weekly low near $4,850 per ounce by noon Eastern. 

After a retest of $4,859, support held early in the Asian session, gold was climbing higher once again, as its first sustained gains of the week saw it top out at $4,939 per ounce by 2:15 a.m. Wednesday morning. 

Wednesday proved to be a standout day for the yellow metal, with spot gold rising sharply from $4,910 at 6:30 a.m. all the way back through $5,000 per ounce by 10:00 a.m. Eastern. But momentum flagged thereafter, and by 7:45 p.m., gold was trading back near $4,960 per ounce. 

The yellow metal then saw its only real consolidation pattern of the week through Thursday, with prices trading in a $40 range on both sides of the $5,000 level. 

The precious metal closed out the week strong, however, with spot gold rising from exactly $5,000 at midnight to $5,040 per ounce by 4:00 a.m. Friday morning. Prices rose to $5,055 per ounce 15 minutes after the North American open, and – after a brief dip down to $5,022 on news of the Supreme Court’s tariff ruling against Trump – they rallied all the way to $5,073 per ounce just before 1:00 p.m. Eastern. 

Mounting tensions in the Middle East left traders looking for insurance over the weekend, and gold saw steady buying right up to the edge of near-term resistance at $5,100 per ounce into the close, where it continued to trade at the time of writing.

The latest Kitco News Weekly Gold Survey showed Wall Street awash in bullish gold sentiment once again, while Main Street investors held fast to their moderate bullish majority for the third straight week.

“I am neutral on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Technically, after a big run, it looks like it's consolidating around $5,000.”

“Up,” said James Stanley, senior market strategist at Forex.com. “Another strong showing from bulls, and there’s now an ascending triangle on shorter-term charts, which is a bullish breakout formation. The $5,100 level is the big level in spot, as this was support-turned-resistance, and now that’s the line in the sand for buyers to break through.”

“Up,” said Rich Checkan, president and COO of Asset Strategies International. “With the lack of anything fundamentally different in the gold market to suggest the pullback we have seen, it is clear this is simply a short-term correction. That is healthy, and the trend to higher prices should resume before long.”

Up,” said Darin Newsom, senior market analyst at Barchart.com. “Recent history tells us high potentates like to invade/start military actions as soon as the Winter Olympics are over. That’s this Sunday. With Putin still tied up in his move from four years ago and Xi not likely to tip his hand on Taiwan, that leaves the US president as the most likely to make a move. The question is where. Given Putin has said he supports the current regime in Iran, the next three possibilities are Greenland, Canada, or Mexico.”

“With the Supreme Court ruling against the president’s one-word trade policy, a ruling he will ignore since he has no use for Courts or Congress, he is likely to be in a foul mood this weekend, upping the chance for a military move,” Newsom said. “We can see metals are expecting the same thing Friday, with both gold and silver rocketing higher. We can also see the expected target is not Iran, because of Putin, with both crude oil markets lower.”

“It’s going to be a fun next few days.”

“Up,” said Adrian Day, president of Adrian Day Asset Management. “It would appear we have likely seen the lows from the end-January sell-off and gold is making a clear, if unsteady, recovery. No one wants to sell ahead of the weekend and possible U.S. action against Iran, so if there is no escalation, then gold could retreat a little on Monday. But the near-term recovery trend is clear.”

John Weyer, director of the commercial hedge division at Walsh Trading, told Kitco News that gold’s price action in the wake of the Supreme Court’s tariff ruling showed that the yellow metal still has plenty of bullish drivers, even if it appeared to lose one.

He noted that gold sold off sharply and immediately on the announcement, but the prevailing sentiment quickly reasserted itself.

“I think there's going to be a lot of wait-and-see as far as markets go,” Weyer said. “We've had reactions both ways during the day, shortly after the announcements. I think some of this, is immediate, but the effect might be down the road a bit. Some of these companies have been planning how to handle continuing tariffs, and now all of a sudden, they have to change those plans that are months out, years out at a time sometimes.

“I think there's just a bit of uncertainty as to how this really plays out for the market for the time being.”

“Gold traded the headline, so to speak, like many markets often do,” he noted. “Then they said, ‘You know what we've been doing? We're bullish gold, for however many reasons there are out there right now.’ And they just got back to what they were doing after a 10 minute, 20 minute, hour-long digestion of the news. ‘Let's go back to what we were doing, which is continue to go higher.’”

Weyer said gold is still riding its own momentum higher, and many market players will stick to that strategy until the market gives them a good reason not to.

“In gold, for let's say the last six months, you are getting participants that are like, ‘Why are you trading gold? Because it's going higher. Why are you buying gold? Because it's going higher.’ There's a run like we've never seen before, and I think they'll just continue to get back to that, slightly sidetracked by a headline today.”

And even if the tariff decision removed some near-term uncertainty that was supportive of gold, Weyer said that with so many other risks and uncertainties currently in play, he expects gold to continue on its upward trend.

“The things we've been seeing here, particularly since the start of the year, but also going back to last year, is we’re just going to continue higher until we really get something that says, ‘Why shouldn't I be there?’ he said. “It’s a self-fulfilling prophecy; it’s going higher because there are so many people on the long side of this right now. And when it's going your way, you continue to buy.”

This week, 13 analysts participated in the Kitco News Gold Survey, with Wall Street bulls reasserting themselves less certain after gold’s strong showing. Nine experts, or 69%, expected to see gold prices break definitively above $5,100 during the week ahead, while only one, representing 8%, predicted a price decline. The remaining three analysts, 23% of the total, saw the risks balanced in the near term.

Meanwhile, 298 votes were cast in Kitco’s online poll, with Main Street investor sentiment holding steady for the third week in a row. 189 retail traders, or 63%, looked for gold prices to rise higher next week, while another 53, or 18%, predicted the yellow metal would lose ground. The remaining 56 investors, representing 19% of the total, expected prices to trend sideways during the week ahead.

Next week is very thin as far as significant economic data is concerned, but markets will receive consumer confidence and producer price inflation metrics. Traders will also be watching President Donald Trump’s State of the Union address for clues about future policy directions. Chinese markets will also come back after the week-long New Year holiday, which should add renewed momentum to the gold market.

On Tuesday morning, traders will watch for U.S. Consumer Confidence for February, with President Trump’s State of the Union address later in the evening.

Then on Thursday, weekly jobless claims represent the week’s only employment indicator, and the week wraps up with the release of the Producer Price Index for February on Friday morning.

“Gold may be carving out a base, but it needs to get above $5120-40,” said Marc Chandler, managing director at Bannockburn Global Forex. “Threat of US attack on Iran should help protect the downside. A break below $4850 would deal a blow to the bulls.”

Alex Kuptsikevich, senior market analyst at FxPro, told Kitco News that he sees gold prices sliding lower next week.

“Gold has been hovering around $5,000 per ounce for the past two weeks,” he said. “A disappointing start to the week, with a drop to $4,850, was followed by a gradual rise [back above $5,000].”

“The precious metal proved resilient to the hawkish FOMC minutes, the strengthening of the dollar and the rise in US Treasury bond yields (its main competitor),” Kuptsikevich said. “Geopolitical factors appear to be supporting demand, as some investors view gold as a hedge against market volatility. In addition, there are still concerns that with the change of the Fed chair in May, the FOMC will move to a sharp easing of policy. In the short term, this rather bullish external backdrop falls on fertile ground, as the price is about 13% below its peak.”

Kuptsikevich noted that since the beginning of February, gold has been forming a sequence of higher lows, which he said is a clear signal that position buyers are becoming less patient. “At the same time, however, selling in gold has increased as it approaches $5,100,” he said. “Perhaps it is only worth discussing further bullish prospects after a confident consolidation above this mark.”

Kuptsikevich said that FxPro continues to believe that the three-year bull rally has ended. “For now, we see a scenario similar to 2011, when there were also many attempts to return the precious metal to growth,” he said. “A similar initial drop of more than 20% later in 2011 and in 2012 was recovered by four-fifths, but it took nine years to break the record. Applied to current prices, similar resistance is around $5,300, but we see that even $5,100 is a tough nut to crack.”

Analysts at CPM Group issued a Buy recommendation on Friday, with an Initial Target Price of $5,400 between February 23 and March 6, and a Stop Loss at $4,850.

“Gold price volatility is expected to continue in a highly unsettled economic and political landscape,” they wrote. “Prices still are vulnerable to downward spikes, although CPM sees prices are more inclined to move higher, next week and in the weeks and months beyond.”

“This Trade Recommendation has an initial objective of $5,225, although a spike to and a target of $5,400 or higher could occur,” they said. “Gold could run to $5,500 or higher in short order. There are plenty of political and economic problems that could trigger such a spike. There are also tight physical markets with investors continuing to load up on ETFs. Technical patterns also point to such a possibility.”

“On the downside, gold remains vulnerable to a spike much lower, with $4,800 in the near term, and possibly even lower in the second and third quarters, depending on political and economic developments,” CPM warned.

And Kitco senior analyst Jim Wyckoff said safe-haven demand is driving precious metals prices higher as the U.S. appears to be on the brink of war with Iran.

“Technically, April gold futures bulls’ next upside price objective is to produce a close above solid resistance at the February high of $5,144.50,” he wrote. “Bears' next near-term downside price objective is pushing futures prices below solid technical support at $4,670.00. First resistance is seen at this week’s high of $5,074.40 and then at $5,100.00. First support is seen at $5,000.00 and then at $4,900.00.”

At the time of writing, spot gold last traded at $5,098.68 per ounce for a gain of 4.30% on the week and 2.06% on the day.

KitcoNews