Wall Street sees no reason to doubt gold's march to $4,000, Main Street grows more bullish as government shutdown starves markets of data

NEW YORK (October 3) Gold melted upward this week as the shutdown of the United States government provided one more reason to dump dollars and flee into hard assets, driving the yellow metal to the edge of $3,900.

Spot gold kicked off the week trading at $3,768.19 per ounce, and it would never sniff that level again. Just after midnight, gold broke through $3,800, and by Monday's North American open, spot gold was trading at $3,826 per ounce. 

This level proved to be solid near-term support for the yellow metal, and gold prices made another push higher overnight, topping out at a near-term peak of $3,870 per ounce by 2:30 a.m. 

After a double top at this level, the bulls balked and gold saw its first sharp sell-off of the week, dropping back down to test support at $3,800 by 5:00 a.m. EDT. But the floor held, and by Tuesday’s American open, gold was right back at its near-term support level of $3,825 per ounce. 

This time, American traders wanted in on the action, and they pushed gold quickly up to $3,854 per ounce just before 11:00 a.m., and as high as $3,860 per ounce just before the close. Asian traders then took the yellow metal as high as $3,869, whereupon the European session drove gold to what proved to be the weekly high of $3,894 per ounce at 5:00 a.m. Eastern Wednesday morning. 

What followed was the only meaningful consolidation period of the week, as gold prices slowly slid down to $3,856 per ounce at the Asian open, before slowly climbing back to $3,893 per ounce 15 minutes before the North American open on Thursday morning. 

This time, however, American traders doubted gold, leading to the yellow metal’s second precipitous drop of the week, this time down to $3,828 per ounce by 11:45 a.m. EDT. But by the North American close, gold had erased half of this decline and was holding back above near-term support in the $3,857 area. 

Following a brief dip down to test $3,840 near the middle of the Asian trading session, gold embarked on its final climb of the week, rising to $3,866 per ounce by 6:45 a.m. and all the way to $3,887 per ounce by the North American open. 

After one final dip to test $3,867, North American traders ultimately pushed gold to the very edge of its weekly high at $3,892 per ounce before pulling back to trade in the mid-$3,880s into the weekly close.

The latest Kitco News Weekly Gold Survey showed Wall Street as bullish as ever following another standout performance, with Main Street investors also increasingly optimistic about the precious metal’s potential gains next week.

“The yellow metal rose for the 7th consecutive week. It has fallen in only one week since the end of July,” said Marc Chandler, managing director at Bannockburn Global Forex. “The US govt shutdown, more talk of Europe re-purposing Russian reserves, and the hybrid warfare in Europe, seem to support sentiment.”

“Near-term support appears to have been built around $3800,” Chandler added. “$4000 does not seem so far away.”

“Up,” said Darin Newsom, senior market analyst at Barchart.com. “I can’t say the situation in the US is the same, as it has gotten worse. Central banks around the world, along with global investors, understand this and continue to buy gold.”

“Up for next week,” said Adrian Day, president of Adrian Day Asset Management. “There are factors that could come together to see gold pause its relentless move up: The US government shutdown ending, and a brokered peace in Gaza, amid the ongoing ‘strike’ among Chinese gold buyers. The first two were not the cause of gold’s appreciation, so logically should not have an impact if they are reversed, while the Chinese pause in buying–-evidenced by large discounts in Shanghai–-has been going on for a while. So on balance, I think gold will power through these potential negatives.”

Daniel Pavilonis, senior commodities broker at RJO Futures, said the impact of the government shutdown on the Fed’s ability to gauge employment is minimal, as he doesn’t believe the Fed is that reliant on government numbers, which have been way off estimates of late.

“The Fed should have its own dataset that they're tracking, so I don't think they're flying blind per se,” he said. “They should have a good feel for things.”

He said that he saw a little bit of sticker shock in the market yesterday on restrained Fedspeak, but it was short-lived. “The metal sold off when [Dallas Fed President Lorie Logan] said that they don't want to cut too much and have to revert back to raising rates,” he noted. “But everything looks like it's coiling up.”

“At these levels – which we haven't really seen, obviously – you have your percentage of client base that's always looking to be long precious metals,” he said. “But now we're starting to see money come in from the sidelines that want to be long metals, looking for a far greater breakout. I think now we're starting to see some of the FOMO money move in and probably push this thing higher.”

Pavilonis said this is starting to be apparent in the silver market. “We're butting up right against $48, we keep on getting up there,” he said.
 We're $2 away from the all-time highs. And I think if we break out, there's probably going to be a lot of upside there.”

“Gold, I think, is just more of a behemoth in terms of trading,” he said. “I think that's locked-in money just chipping away at the long side.”

“I was talking to this trader, he's been around for a long time, traded the metals back in the seventies, and [saw] what happened with depegging the dollar from gold, and watching gold go from like $35 an ounce up to $300,” Pavilonis said. “If you look at some Elliot wave models and what the possibility of the upside still is, if we stay in the conditions that we're in right now, maybe we see $8,000 to $10,000 an ounce in gold by 2030.”

“We're at the tail end of ‘25. We have four more years of upside.”

This week, 12 analysts participated in the Kitco News Gold Survey, with Wall Street overwhelmingly bullish once again. 11 experts, or 92%, expect to see gold prices rise during the week ahead, while not one predicted a price decline. The remaining analyst, representing 8% of the total, expected the yellow metal to trade sideways next week.

Meanwhile, 253 votes were cast in Kitco’s online poll, with Main Street investors’ bullish sentiment beginning to catch up to their professional counterparts. 186 retail traders, or 74%, looked for gold prices to rise higher next week, while another 45, or 18%, predicted the yellow metal would lose ground. The remaining 22 investors, representing 9% of the total, expected prices to consolidate during the week ahead.

After a week focused on employment indicators – some released, some delayed – next week will see very little in the way of U.S. government data unless there’s first a breakthrough in shutdown negotiations. There will, however, be plenty of Fedspeak.

On Wednesday, markets will watch for the release of the minutes from the Federal Reserve’s September monetary policy meeting. Then, on Friday, the Preliminary University of Michigan Consumer Sentiment survey for October will give traders a sense of how the American household is feeling about the economy and their place in it.

Markets will also pay attention to comments from Federal Reserve officials, with Bostic, Bowman, Miran, Kashkari, Barr, and Musalem all scheduled to speak.

Rich Checkan, president and COO of Asset Strategies International, sees nothing but green lights for gold.

“Although we will most likely see pullbacks in the future for profit-taking or once the U.S. government reopens, I don’t see either happening just yet,” he said. “Mismanagement of fiat favors gold. Geopolitical crisis favors gold. Social unrest favors gold. Cutting already low interest rates favors gold. A weakening U.S. dollar favors gold. A Gold/Silver Ratio above 80 favors gold. The Dow/Gold Ratio favors gold. And… although it is starting to slowly awaken… investor sentiment is still weak, favoring a push for higher gold prices.”

Colin Cieszynski, chief market strategist at SIA Wealth Management, is bullish on gold for the coming week. “At this point, there just doesn’t seem to be much scheduled on the horizon to knock the upward trend in metals off course, unless a major surprise comes out of left field,” he said.

He’s also not convinced that the government shutdown is having much direct impact on the metals. “It's more a case of it's not helping the U.S. dollar,” he said. “It's less about the metals themselves and more that it's making the U.S. a little less attractive. Capital has been flowing into the U.S. as part of a flight to safety, but things like a government shutdown remind people that the U.S. isn't quite as safe as you think, so some of that capital is then getting shifted off into the metals instead.”

“Now, if that gets resolved, or peace breaks out, or some other positive event happens, then that could take some of the tailwind out of metals for a while,” he added. “Things have been going all metal’s way for a long time, and at some point, they'll be due for a pause or a consolidation, or a correction. But when that is, it's hard to say.”

Cieszynski agreed that if gold breaks above $3,900, people will be in a hurry to get to the $4,000 level.

“$4,000 is a huge round number,” he said. “I feel like gold is getting drawn towards $4,000, and silver is getting drawn towards $50.”

Cieszynski said he sees the precious metals complex as a whole strengthening and gaining momentum.  

“It just seems to me like this rally is broadening out, and it's getting bigger,” he said. “That's what it feels like. It's getting bigger, not smaller.”

Looking ahead at next week, Cieszynski thinks that even in the absence of U.S. government data releases, he doesn’t expect the FOMC minutes and the various Fed speakers to have much market impact.

“I think people are more focused on other events than the Fed, unless somebody comes out with a big surprise and there's a big change in tone,” he said. “That's all on hold until things like the shutdown get sorted out.”

“The ADP number came out on Wednesday, and it was terrible, and I think they're operating off that,” he said. “That’s probably good enough for everybody in the short term. And starting in a week or so, we're going to start getting earnings, so focus will shift away from the Fed. People focus more on data when either it's going to impact the Fed or there's nothing else to talk about. But in a week or so, you're going to start seeing earnings roll out, and there's going to be lots to talk about. Then people may focus more on the corporate earnings for indications on the economy.”

Alex Kuptsikevich, senior market analyst at FxPro, expects gold prices to rise for the eighth week in a row next week.

“The shutdown has become a new driver of the gold rally, as the lack of compromise between Democrats and Republicans worsens the situation,” he said. “The fall in the USD index and Treasury bond yields, as well as the growth in demand for safe-haven assets, are creating a tailwind for the precious metal amid expectations of a longer and deeper decline in the key rate.”

Kuptsikevich noted that gold-focused ETFs saw their largest monthly inflow in three years in September. “Thanks to rising prices, the reserves of specialised exchange-traded funds reached record levels in dollar terms,” he said. “Growing investment demand, along with active bullion purchases by central banks, is fuelling the precious metal rally. Major banks, including Deutsche Bank and Goldman Sachs, are forecasting its growth to $4,000 and even $5,000 per ounce.”

“Gold closes higher for the seventh consecutive week after 18 weeks of consolidation,” Kuptsikevich wrote. “Technically, we are implementing a triangle pattern with a target growth rate above $4,000. The rally of other precious metals further emphasises the serious approach to the situation on the part of investors. In such conditions, going short in Gold is like trying to bite a bullet.”

Michael Moor, founder of Moor Analytics, also believes gold prices will likely push next week.

“UP. unless we break back below the formation mentioned in the last line below under Lower time frame,” he said. “In a Higher time frame: I cautioned on 8/16/18 the break above $1,179.7-$1,183 warned of renewed strength. We have seen $2,739.6. This is OFF HOLD. On a Medium time frame: The break above 31482 warned of strength for days—we rallied $ 774.5. The trade above 32214 projects this upward $100 (+)—we rallied $701.3. The above are OFF HOLD.”

“On a Lower time frame: The trade above 33411 has brought in $582.2of strength,” Moor said. “The trade above 33850 has brought in $538.3 of strength. The trade above 34186 has brought in $504.7 of strength. The break back above 35640 has brought in $359.3 of strength. The trade above 36658 has brought in $257.5 of strength. The trade above 37143 has brought in $209.0 of strength. The break above 37725 (-7 tics per/hour) has brought in $150.8 of strength.”

“Since we have taken out the 37488-8459 macro exhaustion, we may be headed for the next at 41354-42923,” he added. “Decent trade below 38708 (+7.5 tics per/hour starting at 111:20am EST Friday) will warn of decent pressure.”

And Kitco senior analyst Jim Wyckoff believes the path of least resistance for gold prices remains upward. “Steady-higher on bullish charts, steady safe-haven bidding.”

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