Wild daily swings define gold price action on its path to record highs, focus on Fed speak and bank earnings next week

(Kitco News)

The gold market is ending the week with another massive move. After rising to a 13-month high Thursday, gold gave up all weekly gains Friday, falling $40 on the day.

On the macro level, the gold market is reacting to positive economic news and some hawkish Federal Reserve speak.

“It wasn’t just the data today, you had the banks starting to report earnings. JPMorgan crushed it with record revenue. Wells Fargo’s numbers were pretty good. The deposits were okay. It looks like one of the big risks might not be unfolding right now,” OANDA senior market analyst Edward Moya told Kitco News. “You’re looking at this economy that is still holding up a little bit. And then you get some hawkish Fed speak. That’s why gold sold off.”

This idea that the Fed could somehow pull off a soft landing has encouraged profit-taking after gold hit $2,063 an ounce this week — just inches away from record highs.

“That view is a little too optimistic, but it is the market’s take right now. We’ve gone from focusing on how much the Fed will cut at the end of the year to possibly considering a June hike,” Moya said.

The hawkish sentiment, however, could quickly dissipate with more macro data. “Monetary policy acts with a lag, and with the restrictive territory that we’re seeing, things could start to break soon,” Moya added.

Also, the latest producer price index numbers showed that inflation might have peaked, giving the Fed room to pause after May’s 25-basis-point hike, said Gainesville Coins precious metals expert Everett Millman.

“If inflation is coming down and there are still banking problems, the Fed doesn’t have a lot of good reason to keep its foot on the pedal and hike after May,” Millman told Kitco News. “During the May 2-3 meeting, gold will only react if there is an emergency rate cut or a 50-bps hike. Both are unlikely.”

Atlanta Fed President Raphael Bostic told Reuters Thursday that the Fed will need only one more rate hike. Recent data points “are consistent with us moving one more time,” Bostic said. “We’ve got a lot of momentum suggesting that we’re on the path to 2%.”

In contrast, Federal Reserve Governor Christopher Waller said Friday that there is little progress on inflation and rates will need to move higher.

Inflation has “basically moved sideways with no apparent downward movement,” Waller said. “Monetary policy needs to be tightened further. How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions.”

Technicals have played a big role in the gold’s selloff Friday, with lots of profit-taking flooding the market.

“This is more of a technical selloff than anything,” Forex.com senior technical strategist Michael Boutros told Kitco News. “Pent-up long positions are coming off. But price pullbacks should be limited. The war is still going on, and there is a devaluation of the dollar as a global standard. This will help the gold rally stay afloat long-term.”

Boutros is looking at the $1,966 level as support, which was April’s open. “If we hold that support, it will be just a minor setback for gold,” he said.

For Millman, gold’s key support levels are at around $2,015 and $2,000, and resistance is at all-time highs of around $2,070. “There is no clear support level if we fall below $2,000. Gold can go to $1,900,” he said.

At the time of writing, June Comex gold futures were trading at $2,015.40, down $40 on the day.

Next week, attention will be on bank earnings, including Goldman Sachs and Bank of America. “I anticipate that those are all bullish for gold. We’re going to see markets remain volatile,” Moya said.

Next week’s data

Monday: NY Empire State manufacturing index

Tuesday: U.S. building permits and housing starts

Thursday: ECB meeting minutes, U.S. jobless claims, Philadelphia Fed manufacturing index, U.S. existing home sales,