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October
11
2023

Gold price ends nine-day losing streak but still negative for the week
Neils Christensen

It has been a difficult week for gold as the market saw its longest daily losing streak in seven years with prices hovering near their lowest levels since March.

Although gold prices can still fall further in the near term, some analysts have said there could be some light at the end of the tunnel. The precious metal is looking to end Friday's session with modest gains, ending a nine-day losing streak.

Friday's gains come after gold prices dropped to a fresh seven-month low after data showed that the U.S. economy created 336,000 jobs last month, significantly beating the market's expectations. However, according to some analysts, disappointing wage growth and an unchanged unemployment rate give the Federal Reserve room to leave rates unchanged next month.

Gold is looking to end Friday's session at $1,843.80 an ounce, up 0.66% on the day. Although gold has halted its longest daily losing streak in nearly a decade, it is still finishing in the week with a loss, dropping 1%. This comes after gold's 4% decline the previous week.

Michael Moor, founder of Moor Analytics, said that while the gold market remains in a bearish correction, it is testing critical downside exhaustion levels, which could prompt some investors to probe the market's bullish potential.

He added that one way to manage the potential trade is to be long two future contracts. The recommendation would be to liquidate one position when the trade turns profitable and let the other one run.

Moor noted that the second position would get stopped out, or a potential rally could confirm an end to the correction.

Moor added that below $1,826, he sees another major exhaustion level at around $1,796.

"If that level holds and we see a rally, it could signal the start of a new long-term bullish structure,” he said. "I'm bearish on gold, all the technical, everything points lower, but these exhaustion levels are where traders should be testing the market.”

At the same time, many analysts remain neutral on gold as they wait to see if bond yields have peaked.

A surge higher in long-term bond yields remains the biggest driver of gold prices. The precious metal's selloff this week came as U.S. 30-year bond yields rose to 5% for the first time since 2007, while yields on 10-year notes hit a fresh 16-year high at 4.8%.

Fixed income analysts have pointed out that bond yields are being driven by expectations that the Federal Reserve, even if they're finished raising interest rates, will still keep them in restrictive territory for the foreseeable future.

Although bond yields have room to move higher, with many analysts expecting 10-year notes to hit 5%, some have said the peak is in sight.

"I think it is pretty clear that with these latest employment numbers, this is as good as it gets for the U.S. economy,” said Edward Moya, senior market analyst at OANDA. "It's only a matter of time before corporate America starts to struggle given what is happening in bond markets.”

Moya said that consumers are also feeling the weight of rising interest rates as credit card debt continues to grow.

"So many parts of the economy are going to be choked because of rising interest rates,” he said.

Some analysts have noted that the rise in long-term bonds, a bear steepening of the yield curve, is another strong indicator that the U.S. economy is headed towards a recession.

While many still see the selloff in the bond market as orderly, others have said that it would take much to create a crisis similar to the one witnessed in the British bond market last year.

"The government bond sell-off over the past three months raises uncomfortable questions around the risks of financial instability and the outlook for fiscal policy,” said Jonas Goltermann, deputy chief markets economist at Capital Economics, in a note Friday. "The speed at which bond yields have been going up is potentially concerning because it may result in impaired market functioning and a self-reinforcing cycle of forced sales driving bond prices lower and volatility higher. Two recent breakdowns in government bond markets – the ‘basis trade' meltdown in March 2020 and the UK's ‘LDI crisis' during the ‘Trussonomics' debacle in 2022 – illustrate the potential for market functioning to deteriorate rapidly, leading to spillovers to other asset markets.”

Although risks are growing, Goltermann also noted that bond market volatility is still below levels seen last year in the United Kingdom.

Moya said that next week's inflation data could provide some near-term support for gold. He explained that benign inflation readings could raise expectations that the Federal Reserve is done raising interest rates, which should relieve some of the pressure in bond yields.

Although Moya sees potential for gold prices to fall to $1,800 an ounce, rising market risks could make the current price an attractive entry point.

"Short-term, I think gold is a buy here, even if bond yields move higher,” he said. "With so much economic uncertainty, there are a lot of growing bullish factors for gold.”

 

 

Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press. Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @Neils_c

 

 

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