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Wall St, Main St See Gold Bounce In Face Of Fed Rate Hike

(Kitco News) - Wall Street and Main Street alike look for gold to rise next week even though the U.S. Federal Open Market Committee is expected to hike interest rates by 25 basis points, according to the weekly Kitco News gold survey.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

Normally, rate hikes hurt gold prices for a number of reasons, including potential to lift the U.S. dollar. However, gold prices have already fallen in recent weeks in anticipation of tighter monetary policy, so analysts say there is potential for gold to now bounce.

Nineteen Wall Street analysts and traders took part in this week’s survey. Eleven, or 58%, called for gold to rise. Five, or 26%, were bearish, while the remaining three, or 16%, were either undecided or expected prices to be flat.

Meanwhile, 697 Main Street participants submitted votes in either an online or Twitter survey. A total of 386 respondents, or 55%, said they were bullish for the week ahead, while 208, or 30%, were bearish. The neutral votes totaled 96, or 14%.

In last Friday’s gold survey, 60% of Wall Street voters were bullish on gold for the current week now winding down, while 58% of Main Street was bearish. As of 11:05 a.m. EST, Comex February gold was down $12.30 for the week to $1,165.50 an ounce. Assuming gold remains weaker into the close, this would be the second straight week Main Street was right while forecasting a weekly decline in gold, while Wall Street was wrong.

Going back to mid-May when this reporter took over the Kitco News survey, however, Wall Street has held the upper hand. Wall Street forecast correctly 21 times and was wrong eight times, a winning percentage of 72%. Main Street had a 18-11 mark during this period for 62%.

Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, is among those looking for gold to start recovering from the sell-off over the last month since Republican Donald Trump won the U.S. presidential election.

“The correction, based on dollar’s rally following the Trump victory, has run its course, at least temporarily, and gold is due for a bounce,” he said. “Once the Fed’s rate hike is over with, gold will likely see a relief rally.”

Phil Flynn, senior market analyst with at Price Futures Group, also predicts that gold can get a bounce once the Fed meeting – and expected rate hike – is “out of the way.” Additionally, he cites potential buying as the market factors in expected gold purchases after recent news gold is now compliant with Sharia law, making the yellow metal acceptable as an investment in Islamic finance.

“It (gold) is due for a bounce because it’s fallen so hard,” Flynn added.

Bob Haberkorn, senior commodities broker with RJO Futures, looks for gold to be higher, assuming the Fed doesn’t sound overly hawkish on interest-rate direction for 2017. A Fed hike next week is largely factored into prices, meaning market participants will scrutinize Fed commentary for clues on what can be expected from policymakers next year. Haberkorn said he envisions a hike but then somewhat neutral “wait-and-see” language from the Fed.

Ken Morrison, editor of the newsletter Morrison on the Markets, sees potential for an uptick to the $1,185 region.

“Dollar strength and rising interest rates continue to be headwinds for gold,” he said. “In a glass-half-full sort of way, maybe we should be surprised gold has managed to consolidate above $1,150 support the past couple weeks. Brief rallies above $1,180 have encouraged sellers. I'm inclined to expect gold to be 'inactive money' through the end of the year. Futures open interest, down 40% from the July peak, has returned to February levels. Assuming the FOMC hikes rates only 25 bps next week, it could
set the stage for a 'buy-the-news' event for gold that carries it once again -- and probably briefly -- into the $1,185 area.”

Meanwhile, Ralph Preston, principal with Heritage West Financial, looks for gold to ease next week, commenting that “gold is teetering on the brink.”

Richard Baker, editor of the Eureka Miner Report, said gold faces more challenges next week since expectations are high that the FOMC will bump up interest rates against a backdrop of this week's “trim-but-extend net dovish policy direction” from the European Central Bank.

“This likely sustains a divergence trend between the Federal Reserve and other major central banks, producing tailwinds for the already strong USD and headwinds for (the) gold price,” he said. “Gold continues a bearish descent as it faces rising interest rates that, so far, outpace inflation expectations. However, signs of increasing inflation and stronger physical demand for the yellow metal in China are encouraging. Key will be the interplay between interest rates in the U.S. and increasing inflation expectations from anticipated fiscal stimulation and improved economic growth.”

Charlie Nedoss, senior market strategist with LaSalle Futures Group., is among those who expects gold to be sideways, commenting that the recently stronger U.S. dollar will play a role in whichever direction the metal moves next. Gold often moves inversely to the greenback.

“The dollar has been on a tear. At some point it has to break, but it hasn’t (yet),” said Nedoss said.

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

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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