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Wall Street Finally Turns Its Back On Gold; What Next?

Kitco News

(Kitco News) - Wall Street made a U-turn. Now the question is whether gold will do the same.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

The traders and analysts who take part in the weekly Kitco gold survey are bearish on the metal for next week after having voted bullish for 12 weeks in a row. Their win percentage, which had stood at 66% at the start of September, has taken a bit of a hit, with gold now on the way to its fourth straight weekly decline.

Gold, pressured by the U.S. dollar, remained on the defensive Friday even after a report showing that U.S. nonfarm payrolls fell by 33,000 in September, the first monthly decline in seven years.

Richard Baker, editor of the Eureka Miner Report, cited other bearishly construed portions of the report, including the unemployment rate dipping to 4.2% from 4.4%, average hourly earnings bumping up 0.5% for the month and 2.9% year-on-year, and an increased participation rate, all suggesting that the labor market is tightening – “a prescription for a Federal Reserve rate hike in December.” Baker added that the 10-year Treasury spiked to nearly 2.40%, a key level considered by some to be a tipping point for higher yields to come, and the U.S dollar index strengthened some more.

Fifteen market professionals took part in the Wall Street survey. Ten participants, or 67%, look for gold to be lower next week. Four, or 27%, called for higher, while one, or 7%, sees sideways prices ahead.

Meanwhile, a larger-than-average 2,756 votes were cast in an online Main Street poll, in which respondents correctly called two of the last three weekly declines. A total of 1,204 voters, or 44%, predicted gold will rise in the week ahead. Another 1,019, or 37%, were bearish. The neutral votes totaled 533, or 19%.

For the trading week now winding down, 53% of Wall Street voters were bullish, while 58% of respondents in the Main Street survey were bearish. Around 11:10 a.m. EDT, Comex December gold was down by 0.9% for the week so far to $1,273.80 an ounce.

So far in 2017, but not counting the current week, Wall Street forecasters collectively were right 23 of 38 times for a winning percentage of 61%. Main Street was right 23 of 37 times for 62%.

Kevin Grady, president of Phoenix Futures and Options LLC, looks for gold to continue still lower, pointing out that there are still a “tremendous” number of traders with bullish positions in the futures market, who might eventually sell in order to get out. While U.S. nonfarm payrolls fell last month, he said the jobless rate fell while the labor-market participation rate and wages ticked higher. All of this may mean the market continues to factor in a December U.S. interest-rate hike, Grady continued.

“A big number that I am keeping an eye on is the December [futures] 200-day moving average, which is $1,258.70,” he said. “I think the first time down, it will hold. But below there, I think there will be some technical selling.”

Charlie Nedoss, senior market strategist with LaSalle Futures Group, also looks for further gold weakness, with the potential to test that 200-day moving average. “I’m looking for continued dollar strength,” he said. The one factor that potentially could underpin gold, however, is any political flare-ups as Catalonia seeks independence from Spain, he added.

“The stronger dollar and higher Treasury yields, triggered by today's better hourly earnings in the jobs report, may have just been the final straw that breaks gold's support,” said Ken Morrison, editor of the newsletter Morrison on the Markets. “There's minor support at $1,260, which will surely be tested today, but failing that as I expect, a $1,220 target for gold over a two to three-week time frame cannot be ruled out.”

Ralph Preston, principal with Heritage West Financial, looks for the metal to remain under pressure due to a stronger dollar and a continuing reaction to hawkish comments from Federal Reserve Chair Janet Yellen in recent weeks. “If we get a weekly close under $1,265, all of a sudden we have a shot at a $50 move to the downside,” Preston said.

Meanwhile, Daniel Pavilonis, senior commodities brokers with RJO Futures, looks for gold to finally bounce next week, with the strength in other markets – which have translated into gold weakness – taking a breather.

“Gold sold off quite a bit and we’re coming into support,” he said. He later added, “If inflation is going up, then typically gold goes up too. I’ve noticed that every time we’ve raised rates, gold has gone up ahead of that.”

Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA, looks for gold to move higher as Chinese market participants return from a week-long holiday. The country, along with India, is one of the two biggest gold consumers in the world.

Here is a sampling of thoughts from Kitco Main Street voters on Kitco’s commenting Kitco Chat:

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.