(Kitco News) – The trajectory for gold is tilted firmly to the downside, and traders who buy the near-term bounce off of current levels could be washed out as aggressive Fed rate hikes ultimately push the precious metal down to $3,200 per ounce, according to Daniel Pavilonis, senior commodities broker at StoneX Group
“The charts do not look good,” Pavilonis told Kitco News on Friday. “And the dollar continues to get stronger. I think we’re at a major inflection point here, and if we really start to break down, we can make another leg down.”
“The overwhelming theme of the market just seems non-existent right now,” he added. “There’s no [narratives of] central bank buying and stockpiles running low, all the stuff that we saw around this time last year and into the beginning of this year. We’ve been just trying to mitigate a lower move that’s losing any kind of momentum and building momentum, in fact, to the downside.”
Pavilonis said he’s essentially neutral on the metals right now. “I don’t see an edge,” he said. “I’m long-term bullish, but right now it just seems that the market can be sideways for a long time, range-bound, until something really starts to take shape here.”
“We’re right at the support level where things can bounce, but I don’t know if that bounce is even meaningful,” he warned. “I would probably sell into the bounces.”
Turning to this week’s hawkish Fedspeak, which has reinforced the possibility of larger and faster rate hikes, Pavilonis said he doesn’t believe that the possibility of a 50-basis-point December hike is fully priced into gold.
“If you start to see half-point rate hikes, they’re just going to crash the market,” he said. “I don’t think they’re good at navigating this, because they’re too political; they overstate things. If that happens, we see a washout in gold. I think we would start a new wave lower, from the 100-week moving average down into the 200-week moving average. Essentially, $800 an ounce, $900 an ounce [lower].”
Whether the December rate hike proves to be 25 or 50 basis points, Pavilonis will take it as further proof that there’s no reason for gold to go higher in the near term. “It’s the inverse correlation with rising interest rates,” he said. “At some point, the Fed just overstays with higher interest rates and then backs off, and then after a certain period of time, they start cutting interest rates, that would maybe make gold move higher.”
Pavilonis expects there will probably be some accumulation of weak hands trying to buy into the market in the next little while. “But I expect to see one more aggressive washout, and then the market continues to move higher.”
As to how far that leg down could go, Pavilonis said we’re currently trading at the 100-week moving average, and he could see prices testing the 200-week moving average near $3,200 per ounce.
See live precious metals prices for gold, silver, platinum and palladium — in USD, CAD and 12 more currencies.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.