Retail Investors Changing Gold Tune Post-Jobs

(Kitco News) - The downtrend in gold continues, with the metal logging its seventh straight session loss, and retail investors have finally changed their tune, expecting this pressure to continue in the coming week.

Earlier in the week, Comex December gold futures fell to a four-week low, pressured mostly by increased expectations of a U.S. interest rate hike in December, a sentiment echoed by Federal Reserve chair Janet Yellen on Wednesday and other Fed officials Friday.

Friday’s release of much better-than-expected nonfarm payrolls data also pressured gold futures, which pushed straight through key support of $1,100 an ounce. The metal was last quoted down at $1,087.40 an ounce.

According to the Bureau of Labor Statistics, 271,000 jobs were created in October, up from consensus forecasts of roughly 190,000. Meanwhile, the unemployment rate dipped to a seven-year low at 5%. The marketplace deemed the report as positive and has prompted strong selling in the gold market as investors do not see a 2015 rate hike as far-fetched.  

There were 327 retail investors that participated in Kitco’s online survey, and the sentiment has turned negative on gold. The majority expect gold prices to make a move lower in the short term with 180 voters, or 55%, making bearish calls on the metal. The remaining 105 participants, or 32%, see higher prices, while 42 voters, or 13%, are neutral on prices for the week ahead.  

For the market professionals, the bulls and bears seem to be coming head to head with regards to gold prices next week. Of the 37 participants contacted, 15 responded, of which 6, or 40%, say prices should move up. The remaining 6, or 40%, are bearish while 3 participants, 20%, are neutral as they expect gold to look for direction. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Despite gold’s downturn and more bearish calls on the metal’s price, some market professionals think the gold market is too “oversold” and should move higher.  

“The gold market is now short-term oversold and due for a corrective upside bounce soon,” said Jim Wyckoff, senior technical analyst for Kitco Metals.

“I believe gold has now more or less discounted a Dec. 16 meeting rate hike,” noted Henry To of CB Capital Partners, which has been one of the main factors weighing on the metal. “This means gold will consolidate in the near future, although I don’t see a near-term catalyst for a substantial move higher.”

Ken Morrison, editor of the newsletter Morrison on the Markets, argued that sentiment is now “extremely bearish” in gold. “Gold should find support in the $1,080 area and close above $1,100 by next Friday,” he said.

Veteran trader and precious-metals strategist for RBC Capital Markets George Gero said he is becoming bullish as he expects selling in gold to stop “after Venezuela, rate increase, and tax selling and stop loss sellers are exhausted, leading to bargain hunting to begin.”

Over the longer term, Mark Leibovit, editor of the VR Gold Letter, said he thinks gold has bottomed and is headed “to 1,300 in the next few months.”

Instead of focusing solely on the potential rate hikes and its effects on gold prices, one market professional turned his attention to the Far East.

“This morning's strong nonfarm payroll report reinforced the notion that the U.S. economy was on track and boosted the probability of a December hike to 70%,” noted Richard Baker, editor of the Eureka Miner Report.

However, according to Baker, the most concerning is gold’s loss of value this week to the Japanese yen and U.S. equities.

“The former is troubling because as the yen falls relative to the dollar, gold is falling faster in yen terms. Loss of gold value to a major devalued currency is a red flag,” he said.

Baker added that another bearish factor weighing on the metal is the fact that the gold-to-S&P 500 ratio has dropped bearishly to levels last seen in early July.

“I believe gold will retest the early-August low next week ($1,080.2; 12/15 contract),” he said.

Wall Street

Bullish

Bearish

Neutral

VS

Main Street

Bullish

Bearish

Neutral

By Sarah Benali of Kitco News; sbenali@kitco.com
Follow me on Twitter @SdBenali