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Wall St., Main St. Butt Heads on Gold’s Direction for Fed Week

Kitco News

(Kitco News) - Wall Street traders and analysts swung from bullish to bearish on their short-term view of gold, looking for the metal’s downward momentum to continue next week, while Main Street anticipates a bounce in prices, according to the weekly Kitco News gold survey.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

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Main Street

Bullish
Bearish
Neutral

Gold futures ran up to their highest level since mid-April early this week in anticipation of a number of so-called risk events that occurred Thursday – a meeting of the European Central Bank, congressional testimony from former FBI Director James Comey and U.K. elections. Afterward, prices fell back, with traders citing long liquidation, in which market participants sell to exit bullish positions.

Much of the focus next week will be on the U.S. Federal Open Market Committee meeting. Economists anticipate another 25-basis-point rate hike. If this in fact occurs, traders then will be watching language from the Fed for clues on how aggressive policymakers will tighten going forward.

Eighteen traders and analysts took part in a weekly Kitco News Wall Street survey. Four voters, or 22%, see gold prices rising by next Friday.    Eleven, or 61%, said lower, while three voters, or 17%, were either neutral or expected sideways prices.

Meanwhile, 946 readers submitted votes in an online Main Street poll. A total of 525 voters, or 55%, are bullish. Another 317, or 34%, say that gold will fall, while 104, or 11%, are neutral.

In last Friday's survey for the current week, 80% of Wall Street voters expected gold to rise this week, while there was no Main Street survey due to technical issues. As of 11:06 a.m. EDT Friday, Comex August gold was $11.60 lower for the week so far to $1,268.60 per ounce.

So far in 2017 but not counting the current week, Wall Street forecasters collectively were right 14 of 21 times for a winning percentage of 67%. Main Street was right 13 of 21 times for 62%.

“I am still bullish on all precious metals,” said Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA. “I think any pullbacks should be bought.”

Adam Button, currency analyst with Forexlive.com, also looks for strength in gold due an expectation of “some subtle signals” that Fed Chair Janet Yellen is “considering a pause” in rate hikes until inflation picks up.

The majority of Wall Street respondents, however, still see momentum carrying the metal lower.

“With Comey and the U.K. election over, some of the political risk fears are unwinding and a correction has started in gold,” said Colin Cieszynski, chief market analyst in Canada for CMC Markets. “Plus USD [the U.S. dollar] is on the rebound with the Fed likely to raise interest rates next week. I see this as a downswing that could run for a week or two.”

A 10% surge in open interest on a recent $30 rally led to stronger resistance and a potential double-top on the technical charts around $1,300, said Ken Morrison, editor of the newsletter Morrison on the Markets.

“To the extent the U.K.'s snap election and Comey's testimony served as catalysts for the rally, those events are now past and the strength in the dollar may now be gold's stiff headwind,” Morrison said. “ I look for gold to pull back to at least $1,260, the short-term uptrend support off the May low, but wouldn't be surprised if gold sees $1,250 sometime over the next week.”

Richard Baker, editor of the Eureka Miner Report, said he looks for a likely bump higher in U.S. interest rates to bring the yellow metal to $1,260 or lower, threatening an uptrend of higher lows established since May 9.

“Ongoing political and geopolitical uncertainty should, however, maintain strong support at $1,250 per ounce,” Baker added.

Kevin Grady, president of Phoenix Futures and Options LLC, also sees gold weakening some more ahead of the FOMC meeting, particularly if equities fare well and take away some of the safe-haven bid for the metal.

“I just think so many longs came into the [gold] market looking for something to happen on Thursday,” he said. “It didn’t happen, so we had a sell-off yesterday. I think we’re going to continue to see some long liquidation.”

Daniel Pavilonis, senior commodities broker with RJO Futures, and Sean Lusk, director of commercial hedging with Walsh Trading, also look for gold to fall heading into the interest-rate decision. However, they anticipate that once the Fed meeting is out of the way, the gold market can recover.

“We’ll go a little lower, then back to where we are now,” Pavilonis said.

Added Lusk, “We’ll see what the Fed has to say. Usually, after a rate hike, we get a bounce.”

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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