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Wall St. Bearish On Gold On Higher U.S. Rate-Hike Expectations

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(Kitco News) - Expectations for U.S. interest rates did an about-face this week, and so did the outlook for gold among Wall Street traders and analysts in the weekly Kitco News gold survey.

“The interest-rate picture changed dramatically from Monday,” said Kevin Grady, president of Phoenix Futures and Options LLC. “When we came in Monday morning, the percentage for an interest-rate hike was around 30% (based on the Federal funds futures). We’re looking today at about 75%.”

As a result, the majority of Wall Street voters flipped to a bearish view of gold over the next week, after they previously had been bullish for four weeks in a row.

As of 11:19 a.m. EST, Comex April gold had lost 2.6% so far this week to $1,225 an ounce after a number of Federal Reserve officials, perhaps most notably New York Fed President William Dudley, hinted at a rate hike in the foreseeable future. As this survey went to press, the market was awaiting an afternoon speech by Fed Chair Janet Yellen.

“Wow -- what a difference a week makes with the U.S. dollar exploding upward and sending gold tanking,” said 
Colin Cieszynski, chief market analyst in Canada for CMC Markets.

Twenty-one market professionals took part in a weekly Wall Street survey.  Twelve voters, or 57%, see gold prices falling by next Friday. Seven, or 33%, said higher, while two voters, or 10%, are neutral.

Meanwhile, Main Street remained bullish. A total of 984 Kitco readers submitted votes, and 566, or 58%, said gold will rise. A total of 264 voters, or 27%, were bearish, while another 154, or 16%, were neutral.

In last Friday’s survey, 65% of Wall Street voters and 68% of Main Street participants called for gold prices to increase in the current week. The price decline so far this week means their three-week win streak in the survey is headed for an end. Previously, Wall Street and Main Street both had called the direction of gold correctly five of seven times in 2017 for a winning percentage of 71%.

“Gold tends to get weaker ahead of a Fed rate hike, but we see any correction as short-term weakness,” said Commerzbank analyst Eugen Weinberg, among those looking for a near-term decline.

“weak March seasonals, the Fed and U.S. dollar strength are all reasons to lighten up on gold in the week ahead,” said Adam Button, currency analyst with Forexlive.com.

Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, commented that the gold market by now has already discounted a March rate hike by the Federal Reserve.

“We may get further weakness next week, but after that gold should rebound,” he said. “So down next week.”

Mark Leibovit, editor of the VR Gold Letter, said it appears gold hit a trading top tied to “fairly reliable cyclical peak” due by the end of February or early March. Leibovit said he’s not a bear in gold, but is “just thinking we could see some correction action, which could potentially take silver down to $16.75-17.00 and gold down to $1,190-1,210  range.” Otherwise, he is still targeting silver into the low $20s and gold back to $1,375-1,450 in the next year.

Sean Lusk, director of commercial hedging Walsh Trading, is among those who looks for gold to bounce.

“I would say this dip is going to be a buying opportunity,” Lusk said. “There is uncertainty in the markets.”

 Richard Baker, editor of the Eureka Miner Report, lists a target of $1,240 an ounce.

“I will take a contrarian view that today's softness in the U.S. dollar and pause in domestic stocks presages another turn of fortune for gold,” Baker said. “I wager the Fed will not raise rates because the details of the new administration infrastructure plan remain unclear and the drumbeat of upcoming elections in Europe (is) growing louder; fears of a French FN victory and the potential impact to European stability provide a solid floor for gold price above $1,200.”

Cieszynski described himself as neutral for next week.

“I think traders have now priced in a March rate hike into the U.S. dollar and the worst part of the gold correction could be near an end,” he said. “There is a lot of political risk swirling around March 15th with the Netherlands election, Fed and Bank of Japan meetings, potential trigger of Article 50 kickoff to Brexit and the end of the U.S. debt ceiling deal, which combined, could start to put a floor under gold. It may not bounce back very far, so I am neutral.”

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.

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