Wall Street, Main Street Expect Gold To Continue Shining
By Allen Sykora of Kitco NewsFriday January 13, 2017 11:32
(Kitco News) - Wall Street and Main Street alike look for gold to continue its recent rally next week, according to a pair of Kitco News gold surveys.
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Analysts and traders who envision further strength cite political uncertainty, with Donald Trump to be inaugurated as U.S. president next week. Those who see gold weakness cite profit-taking potential and a possible bounce in the U.S. dollar after the latter’s recent correction lower.
Eighteen traders and analysts took part in a weekly Wall Street survey. Eleven voters, or 61%, see gold prices rising by next Friday. Six, or 33%, see a retreat in prices, while one voter looks for a range-bound market.
Meanwhile, 495 participants took part in the Main Street survey. A total of 333 participants, or 67%, called for gold to rise, while 117, or 24%, saw lower prices. The remaining 45 voters, or 9%, were neutral.
In last Friday’s survey, 75% of Wall Street voters and 54% of Main Street participants called for gold to rise this week. As of 11:13 a.m. EST, they were right, as Comex February gold was up $21.50, or 1.8%, for the week to $1,194.90 an ounce.
Going back to mid-May when this reporter started handling the Kitco News survey, Wall Street forecast correctly 21 times and was wrong 12 times, a winning percentage of 64%. Main Street had a 20-13 mark during this period for 61%.
“I am bullish on gold for next week,” said Colin Cieszynski, chief market analyst in Canada for CMC Markets. “Political risk is back! The street has been overcomplacent about Trump but this week’s press conference showed that the economy is one of many priorities. With Inauguration Day coming on Friday, the rubber hits the road and the street is likely to get a reminder that politics doesn't move at the speed of the market.”
He characterizes the U.S. dollar as looking “vulnerable.” Additionally, Brexit “is going to be front and center” again in the next week, with U.K. Prime Minister Theresa May due to deliver a speech Tuesday on her country’s plans to exit from European Union, Cieszynski added.
“This little dip (in gold) we have off of the highs is going to be bought,” said Sean Lusk, director of commercial hedging with Walsh Trading. “There is way too much uncertainty going forward….That will cause some uneasiness.”
Henry To, analyst at CB Capital Partners, also looks for gold to rise next week.
“Net speculative positioning in gold futures was most recently down eight weeks in a row, and was at its lowest level since January 2016, suggesting an extremely oversold positioning,” To said. “Moreover, U.S. wage growth is now at a cyclical high and is continuing to surprise on the upside, suggesting higher inflationary pressures, which should support gold prices in the short run.”
George Gero, managing director with RBC Wealth Management, figures gold can keep rallying since the market has already factored in Federal Reserve tightening this year. This previously hurt the precious metal during the latter part of 2016.
“A modest pullback next week after the recent run-up would be in order, but fundamentally we remain bullish,” said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management. “The factors that hurt gold in the second half of last year—rising rates, a strong dollar, optimism on a Trump-induced economic recovery--have played out. The underlying factors of easy money around the world, rising demand from China and India, and global instability will come to the fore again.”
Kevin Grady, president of Phoenix Futures and Options LLC, anticipates a profit-taking pullback next week. He pointed out that open interest and recent price action suggests some 15,000 new longs in futures contracts but without a commensurate increase in exchange-traded-fund holdings. There is a chance some of the “weaker” hands in the futures market may opt to exit their new long positions, he said.
“We’ve come so far, so fast,” Grady said. February gold has rallied roughly $65 since the mid-December low. He later added, “With any strength in the dollar, you’re going to see some lower (gold) prices.”
Bob Haberkorn, senior commodities broker with RJO Futures, figures higher inflation could offer some support for gold, but said this also means continued potential for Federal Reserve rate hikes that would boost the dollar and hurt gold. The area around $1,200 is also offering some resistance, he added. Gold poked above this level this week but has not been able to generate further upside momentum.
“I think you’ll see the dollar bounce, which will put a little pressure on the metals,” Haberkorn said.
By Allen Sykora of Kitco News; asykora@kitco.com
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