Wall Street, Main Street Mixed But Lean Toward Gold BounceBy Kitco News
Friday November 11, 2016 11:51
(Kitco News) - That certainly didn’t go according to script.
In last week’s Kitco News gold survey, Wall Street and Main Street both looked for gold to rise this week regardless of who won the U.S. presidential election. Hillary Clinton was expected to win, and most analysts called for gold to get an even bigger safe-haven bid if Donald Trump won instead.
Instead, Trump is the president-elect and gold finished the week by hitting a five-month low, reversing and selling off after an initial surge in the first hours after it became apparent the real-estate developer and reality television star would beat Clinton in the Electoral College.
Wall Street and Main Street both forecast gold’s direction correctly five weeks in a row before this week’s miss. Now, after market movement that has surprised many, there is more uncertainty on Wall Street about what to expect next.
Eighteen market professionals took part in the Wall Street survey. Nine participants, or 50%, look for gold to be higher next week. Eight, or 44%, called for lower, while one, or 6%, sees sideways prices ahead.
Meanwhile, 803 Main Street participants submitted votes in an online survey. A total of 414 respondents, or 52%, said they were bullish for the week ahead, while 292, or 36%, were bearish. The neutral votes totaled 97, or 12%.
For the trading week now winding down, 65% of Wall Street respondents and 72% of Main Street participants looked for gold to rise. Instead, around 11:15 a.m. EST, Comex December gold was down by 5.4% for the week so far to $1,233.20 an ounce.
Going back to mid-May, the largest Wall Street voting camp forecast correctly 20 times and was wrong five times, a winning percentage of 80%. Main Street had a 17-8 mark during this period for 68%.
Kevin Grady, president of Phoenix Futures and Options LLC, said more future weakness may be in store due to an apparent reversal in the recent trend for exchange-traded funds. During Kitco News surveys in the recent past, he tended to be upbeat since metal held by ETFs was holding up. But, he pointed out, global ETFs saw an outflow of roughly a half million ounces on Thursday. Further, whereas past gold weakness was seen as long liquidation of futures positions, Thursday’s selloff with only a modest decline in open interest suggests traders with bearish positions now are entering the market.
“If we’re seeing some shorts entering the market, that’s a game-changer,” he said.
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, also looks for more of a pullback.
“The unexpected response of the market to the Trump victory will likely continue into next week, so we could see further weakness in gold on dollar strength,” he said. Eventually, the “reality will set in” that Trump’s infrastructure spending and tax reform will take time. “But with positive stories about his potential candidates for cabinet posts and policy plans, the current optimism will likely continue for another week or two,” Day said.
Phil Flynn, senior market analyst with at Price Futures Group, looks for gold to finish weaker next week, although he looks envisions a recovery from the lows in the second half of the week. First, however, the metal may be pressured by the recently stronger U.S. dollar and rising Treasury yields.
“That doesn’t mean we couldn’t see this market turn around in the future,” he said. “At some point, some of the strong moves in industrial metals could give us a little bit of support with the expectations there might be a little more inflation.”
Colin Cieszynski, chief market analyst in Canada for CMC Markets, sees the market moving still lower even though prices might be getting oversold.
“Although gold is looking a touch oversold and due for a trading bounce, this week’s bearish reversal is a major one I can’t dismiss,” he said. “Gold may continue to get hit by outflows of capital from defensive areas back into stocks in the coming week.”
Bulls See Bounce From ‘Oversold’ Territory On ‘Value’ Buying
Meanwhile, Charlie Nedoss, senior market strategist with LaSalle Futures Group, looks for gold to bounce as market participants to step in as bargain hunters on the break lower.
“We’re getting into a value area,” he said. “There is enough uncertainty over the new election and what is going on with the new administration.”
Sean Lusk, director of commercial hedging with Walsh Trading, also looks for a bounce, suggesting gold has hit “oversold” levels.
“It looks like they’re going to take this down to around $1,220, which is the 50% retracement from the yearly high to yearly low,” he said. “This (sell-off) is just mass liquidation, with people getting stopped out. I look for us to have a retracement rally if $1,220 can hold.”
Richard Baker, editor of the Eureka Miner Report, also voted higher.
“We have witnessed record and unsustainable gold ratios since the strong dollar era began in late-October 2014,” he said. “As developed nations slowly replace aggressive monetary policies with fiscal stimulus, commodity prices should rise. This is further aided by increasing inflation expectations. Gold will likely stabilize in a range of $1,240 to $1,320 per ounce in the next six months, even though gold has dipped below that range this morning.”
George Gero, managing director with RBC Wealth Management, also looks for gains, citing a “return to basics and inflation possibilities.”