Wall Street Evenly Split On U.S. Dollar, Gold DirectionBy Allen Sykora of Kitco News
Friday November 18, 2016 12:12
(Kitco News) - Wall Street and Main Street are divided on whether the U.S. dollar will come to gold's rescue or plague the precious metal further next week, according to the weekly Kitco News gold survey.
Eighteen analysts and traders took part in this week’s Wall Street survey, and they were split right down the middle – nine each – on whether gold would bounce or continue to slide over the next week. Of those who offered comments, nearly all listed their short-term expectations for the U.S. dollar as the key factor on where gold is headed. A weaker greenback tends to support gold, prompting buying as sort of an alternative currency and because all commodities become cheaper in other currencies, and vice-versa.
Meanwhile, 689 Main Street participants submitted votes in either an online or Twitter survey. A total of 301 respondents, or 44%, said they were bullish for the week ahead, while 271, or 39%, were bearish. The neutral votes totaled 113, or 16%.
For the trading week now winding down, 50% of Wall Street respondents and 52% of Main Street participants looked for gold to rise. As of noon EDT, Comex December gold was down by 1.2% since last Friday’s close, trading at $1,209.20 an ounce.
Going back to mid-May, the largest Wall Street voting camp forecast correctly 20 times and was wrong six times, a winning percentage of 77%. Main Street had a 17-9 mark during this period for 65%.
The euro hit an 11-month low of $1.05693 against the dollar this week. Those looking for further weakness in gold generally expect the greenback to continue to flex its muscles.
“The reality is as long as the dollar stays strong, it’s going to put pressure on commodities across the board,” said Daniel Pavilonis, senior commodities brokers with RJO Futures.
Kevin Grady, president of Phoenix Futures and Options LLC, listed similar sentiment but added that some shorts are opening bearish trades lately.
“Gold is having a hard time dealing with the strength in the dollar,” Grady said. “We’re looking at some very high percentages (of expectations that) there is going to be a rate hike this December. If you couple those two things together, it’s going to put a little pressure on gold. I think they (market participants) are going to try to find a level where the market has some support and try to test that support….Right now, we are starting to see some shorts coming into the gold market, although nothing crazy.”
Sean Lusk, director of commercial hedging of Walsh Trading, also looks for more gold weakness although he added that he would be a buyer around $1,185. He said he envisions more long liquidation for now as the dollar and equities remain strong.
“There could be further weakness in light of the stronger dollar following (Donald) Trump’s election, as well as confirmation that the Fed is on track for a December rate hike,” said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management. “However, Yellen’s testimony (Thursday) -- in effect throwing down the gauntlet to Trump -- suggests an environment ahead that could be positive for gold. So after additional weakness, perhaps after the December rate increase, gold will likely resume its upward trajectory.”
Expectation For Dollar Pullback Behind Most ‘Higher’ Votes For Gold
“I am bullish on gold for next week,” said Colin Cieszynski, chief market analyst in Canada for CMC Markets. “I think USD is getting really overbought and vulnerable to a correction, particularly to profit-taking with the U.S. Thanksgiving holiday approaching. There also aren’t any major Fed speeches next week. A USD correction could enable gold to stage a trading bounce, which may be getting under way today with the successful test of $1,200.”
Ken Morrison, editor of the newsletter Morrison on the Markets, agrees.
“In the first full week of re-pricing financial assets since the U.S. election, gold bore the brunt of the dollar strength and rising Treasury yields,” he said. But “sentiment has now reached extremes” in these markets, he said. “Bullish sentiment for the 30-year fell to 4% Monday, levels not seen since 2006. Bullish sentiment on the dollar index at Thursday's close was 91%, the most bullish since March 2015. I look for corrections in each of these markets in the week ahead, with a target of $1,230 for
Phil Flynn, senior market analyst with at Price Futures Group, figures gold is due for some kind of rebound even though some technical-chart damage has been inflicted upon the market. He pointed out that gold was holding above nearby support around $1,200 an ounce.
“Our expectation is things will level off a little bit next week and we’ll recover a little bit,” Flynn said. “Look for prices to be a bit higher next week. We could see a bit more concerns about inflation….We think the dollar eases back a bit and that should give gold bulls a chance to baby-step their way back into the market.”
George Gero, managing director with RBC Wealth Management, looks for gold futures to benefit from options expiration scheduled for Tuesday.
“Options open interest has really jumped,” he said. “There are a lot of puts and a lot of shorts in the options. So you could see some short covering after options expiration if we stay above the $1,200 area.”