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Wall Street Turns Bearish, Eying Technical Damage To Gold Market

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(Kitco News) - While there is still some bullish sentiment for gold among Main Street investors, analysts have turned slightly bearish on the yellow metal, with many highlighting the recent technical chart damage done to the market.

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This week, 19 traders and analysts took part in a Wall Street survey. Seven voters, or 37%, see gold prices rising by next Friday. Nine, or 47%, see lower prices, while three voters, or 16%, are either neutral or expect sideways trading.

Meanwhile, 1,570 Kitco readers submitted votes in an online Main Street poll. A total of 756 voters, or 48%, are bullish. Another 639, or 41%, say that gold will fall, while 175, or 11%, are neutral.

In last Friday's survey for the current week, voters looked for the metal to climb this week, although each camp was less than a majority. Forty-three percent of Wall Street voters and 48% of Main Street voters predicted gold would rise this week. Based on where gold was trading late in the morning, neither camp was right. As of 11a.m. EDT Friday, Comex June gold was down 3% for the week, last trading at $1,229.10 an ounce.

So far in 2017 but not counting the current week, Wall Street forecasters collectively were right 11 of 16 times for a winning percentage of 69%. Main Street was 9-7 for 56%.

Not only is gold seeing its worst weekly loss since the week of the November U.S. election, sentiment on Wall Street has turned bearish as prices have broken below the 50-day and 200-day moving averages.

With gold trading below key support levels, the technical chart damage provides more downside risk for the market, according to some analysts.

“I think we could see some further technical weakness to $1,210 and then $1,200,” said Sean Lusk, director of commercial hedging with Walsh Trading.

Lusk added that commodities generally suffer as investors continue to see value in equities in a low risk sentiment environment. Gold will continue to suffer as long as the Volatility Index ($VIX) remains at historic lows, he said.

Colin Cieszynski, senior market analyst at CMC Markets Canada, said he is also negative on gold as he expects to see bearish momentum pick up.

“Too much technical damage has been done this week for gold to bounce back quickly. Gold is not oversold, so follow-through could send it down toward $1,220 or even $1,200 in the coming days,” he said. “On top of this, a lot of near-term political risks have faded while crashing energy and base metals prices reduce the need for an inflation hedge. At this point, the only thing that could move gold back up is a surprise in the French election.”

While markets have seen little reaction to April’s employment data, the report has helped solidify expectations that the Federal Reserve will raise interest rate hikes in June. CME 30-Day Fed Fund futures are pricing in an 83% chance of a rate hike next month.

According to Ken Morrison, editor of Morrison on the Markets, these expectations will continue to weigh on gold. 

However, on the bullish side, analysts said the market has moved down to quickly and it may be due for a modest correction.

“Gold is finding some initial support above $1,225 and I think if these levels hold then we could see a bit of a bounce next week before we head lower,” said Darin Newsom, senior analyst at Telvent DTN.

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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