Expect to see some consolidation next week as gold price is unable to hold gains above $2,400

(Kitco News) – Gold and silver remain in robust uptrends, but investors should prepare to see prices consolidate next week as its recent momentum appears to have peaked, according to some analysts.

Both gold and silver saw renewed volatility on Friday as the precious metals could not hold their significant gains early in the day. At one point, gold prices were up more than 4% on the day, peaking at $2,448.80 an ounce. However, the yellow metal is now looking to end the week close to where it started. June gold futures last traded at $2,355.60 an ounce, up 0.4% from last Friday.

Meanwhile, silver has managed to maintain its outperformance against gold, even as it gives up similar gains Friday afternoon. Silver peaked Friday morning at $29.905 an ounce, an intra-day three-year high. However, as the dust settles, it looks to end the week holding support above $28 an ounce. May silver futures last traded at $28.105 an ounce, up 2% from last week.

Although gold could not hold its ground above $2,400 an ounce, analysts note that it remains relatively strong as it prepares to notch another record weekly close in its belt. The new record comes even as markets start to price out a potential rate cut in June after March inflation came in higher than expected.

According to the CME Fed Watch Tool, markets see only a 27% chance of a rate cut in June, down from a 50% price last week and 68% price a month ago. However, analysts note that although the Federal Reserve could delay the start of its easing cycle, it is unlikely they will be raising interest rates again, which means that real interest rates can still move lower, a positive environment for gold.

While gold remains well supported, some analysts have said the rally is becoming over-extended.

“I think the momentum is still strong, but at the same time, it is not right to be greedy, and given the stellar rally we have seen in the gold price, we think it is wise to book some profit,” said Naeem Aslam, Chief Investment Officer at Zaye Capital Markets.

Philip Newman, Director and Founding Partner of Metals Focus, also said it might be a good idea for investors to take some of their profits off the table. He said the gold market is due for some consolidation after this unprecedented run in record territory.

“We don’t expect to see a significant pullback, but we do think a short-term correction makes sense at these levels,” he said.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that although the price momentum is extreme, he is looking through the recent volatility and is focused on the broader trends driving prices.

He noted that gold remains well supported in part due to rising inflation fears and growing uncertainty over the health of the global economy.

“Right now, the market is looking for something to break before it has actually broken, and it leaves the market exposed to a correction. Am I going to take chips off the table? I don’t think so as I’m in it for the long run,” he said. “I am still wondering what may happen if the economic data starts to weaken and inflation remains bid. That would justify gold’s performance.”

While everyone focuses on gold in U.S. dollar terms, it has made record gains against all major currencies. Hansen pointed out that gold is up 20% against the euro, 22% against the Australian dollar, and 26% against both the Japanese yen and Swiss franc.

Christopher Vecchio, head of futures strategies and forex at Tastylive.com, said that while he likes gold and silver, he will not be chasing the market at current levels. He added that he is looking to buy on dips.

“The Federal Reserve has been telling us that their next move is going to be a cut even though we see solid economic growth and stubborn inflation. This will drive real yields higher, and that is a positive environment for gold and silver,” he said.

Although sentiment in the marketplace is expected to drive price action in the precious metals markets, some economic data could add to the recent volatility.

The key data to watch next week include regional manufacturing data, March retail sales numbers, and housing data. Federal Reserve Chair Jerome Powell will also be speaking next week in a discussion with Bank of Canada Governor Tiff Macklem.

The International Monetary Fund will also be holding its annual spring meeting in Washington, D.C., next week.

Economic data to watch next week: 

Monday: U.S. retail sales; New York Federal Reserve Empire State Survey,

Tuesday: US building permits and housing starts, Fed Chair Jerome Powell and BOC Governor Tiff Macklem speak

Thursday: Weekly jobless claims, Philadelphia Federal Reserve Manufacturing Survey, U.S. existing home sales