Most Retail Investors, Analysts Positive On Gold As Expectations For Global QE Grow
Friday October 23, 2015 12:22
Friday, Comex December gold futures rallied back to their 200-day moving average overnight after the People’s Bank of China surprised markets by cutting interest rates by 25 basis points, dropping rates to 4.35%; however, the rally was short-lived as prices fell back into negative territory at the start of the North American equity open. Gold prices are preparing to end the week in negative territory, down 1.2% and ending a two-week winning streak.
Looking ahead, the majority of retail investors continue to expect to see higher gold prices in the short term. This week 235 people participated in Kitco’s online survey. Among the voters, 128, or 54%, are bullish on gold next week; 71 people, or 30%, are bearish in the near term; and 36 people, or 15%, are neutral on gold.
Although sentiment in the gold space is still positive, it is significantly lower compared to the previous week, which saw 78% of retail investors bullish on gold prices.
The vote among market professionals was a lot closer with no clear majority view. Out of 35 market experts contacted, 18 responded, of which eight, or 44%, said they expect to see higher prices next week. At the same time, six professionals, or 33%, are bearish on gold, and four participants, or 22%, are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
The overnight monetary policy action by the Chinese central bank has created some mixed feelings among market analysts. The day before China’s surprise move, the European Central Bank announced that it is leaving the door open for more quantitative easing measures or even push the deposit rate deeper into negative territory in December. Some analysts see China’s move as just the start in a new global easing cycle.
“It is clear that monetary policy around world continues to be easy and is likely to stay that way. This is positive for gold,” said Adrian Day, president of Adrian Day Asset Management. “The market had been concerned about the possibility of the Federal Reserve raising rates, but increasingly the market sees the Fed as the ‘boy who cried wolf’—or, with Janet Yellen, the girl who cried wolf.”
Jessica Fung, market analyst at BMO Capital Markets, who is relatively neutral on gold prices, next week agreed that the Federal Reserve is losing its dominance in the marketplace. She added that with the U.S. central bank not expected to adjust interest rates at next week’s Federal Open Market Committee meeting, the focus could be on the Bank of Japan, which also meets next week and there is growing expectations that it will announce new easing measures.
“Even if the Federal Reserve does signal a rate hike later this year or early next year, investors will be busy buying gold in other currencies,” she said. “That should be supportive for the market.”
Ole Hansen, head of commodity strategy at Saxo Bank, agreed that the question next week will be: “who is next to jump on QE and where does that leave the Fed?”
Hansen added that he is slight bullish on gold next week if the U.S. dollar shows some signs of stabilizing.
However, other analysts are not ready to rule out the Fed just yet. Colin Cieszynski, senior market strategist at CMC Markets, said that a “hawkish hold” from the Fed next week could be negative for gold.
“This morning with the PBOC cut, I think we hit a point of maximum dovishness among central banks and even with this, gold could not break out and in fact following a short rally, it has reversed sharply downward, a sign the gains of the last few weeks have ended and a correction started,” he said. “Next significant support for gold appears at $1,160, a Fibonacci level, and the 50-day average near $1,140. RSI is also rolling over, indicating upward momentum weakening.”