Wall Street Split On Gold Prices; Main Street Bullish
The critical event markets will be focusing on next week will be a meeting of the Federal Open Market Committee. Policymakers are expected to hike interest rates another 25 basis points, but market watchers will be watching closely for clues on the pace of future hikes. Fed Chair Jerome Powell has suggested rates may be nearing a “neutral” level, and financial markets have been scaling back the number of rate hikes expected next year.
Those who are bullish tended to cite the potential for the FOMC to be more dovish than in the past. However, the gold bears cited recent dollar strength and technical-chart factors.
Eighteen market professionals took part in the Wall Street survey. There were seven votes, or 39%, for both higher and lower. The other four respondents, or 22%, called for gold to be sideways or else were neutral.
Meanwhile, 507 people responded to an online Main Street poll. A total of 291 respondents, or 57%, called for gold to rise. Another 115, or 23%, predicted gold would fall. The remaining 101 voters, or 20%, see a sideways market.
For the trading week now winding down, 57% of Wall Street and 64% of Main Street were bullish. Around 11:05 a.m. EST, Comex February gold was 0.9% lower for the week so far to $1,241.30 an ounce.
“I think the trend to the upside is going to remain intact,” said Sean Lusk, director of commercial hedging with Walsh Trading. “I’d look to buy dips down here.”
Like others, he suggested the metal will rise after the FOMC meeting, with expectations that monetary policymakers may hint at a slowing of the pace of tightening. That presumably would take away support from the U.S. dollar, Lusk said.
George Gero looks for gold to rise, suggesting short covering will occur after the FOMC meeting.
“Gold will get a boost as the Fed will most likely come off as more dovish after they more than likely raise rates next week,” said Phil Flynn, senior market analyst with at Price Futures Group. “Seasonal demand for gold is also strong and that should add even more support.”
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, also looks for gold to rise.
“The threat of a government shutdown, as well as a Fed pause in rate tightening and increased legal trouble for President Trump, although already partly in the price, could cause a shock if they escalate,” Day said. “The next week or two may be uncertain but the next few months look up.”
Meanwhile, Mark Leibovit, editor of the VR Gold Letter, is among those who look for a pullback in gold prices.
“Too far, too fast,” Leibovit said, referring to a recent rally. “Think we're headed south next week.”
Eugen Weinberg, head of commodity research at Commerzbank, said that he is bearish on gold ahead of the new year. In particular, it will be difficult for gold to rally as the U.S. dollar remains strong, he said.
Charlie Nedoss, senior market strategist with LaSalle Futures Group, looks for February gold to test the 50-day moving average around $1,231.50 and last week’s low of $1,226.60.
“We met an objective around the $1,260 area,” he said. “We haven’t been able to stay there. We broke [down] through the 10-day and are testing the 20-day [average near $1,237].”
Richard Baker, editor of the Eureka Miner Report, listed a downside target around $1,225 an ounce. On the positive side, he pointed out that gold has had a bullish trend of higher lows, compared to the embattled S&P 500, since the end of September.
“However, renewed U.S. dollar strength with the euro dipping below the key $1.13 level this morning blunts the bullish trend relative to equities,” Baker said. “This morning gold and the S&P 500 are tracking lower together on concerns about slowing global growth and interest rate uncertainty. I believe it likely the dollar countervailing force will continue next week to drag gold to the $1,225 level, with silver following to $14.40 per ounce.”
Further, he said, 10-year real rates are creeping above 1% even though the 10-year Treasury has fallen below 3%. “This is because inflation expectations are below 2% on a 10-year basis, canceling the normally bullish influence of lower interest rates on gold price -- another headwind for higher gold prices in the near term,” Baker said.
Kevin Grady, president of Phoenix Futures and Options, said he is neutral going into next week.
“Although there is a lot of news in the market, we see a lot of traders taking the position of ‘risk off’ heading into the year end,” he said. “We also have a FOMC meeting next week. The assumption is that there will be a rate hike, but all eyes will be on the statement Wednesday afternoon.
“I believe that the Fed will take a more dovish position going into 2019. It will be interesting to see what kind of message they wish to send out to the marketplace.”
Ole Hansen, head of commodity strategy at Saxo Bank, also said he is neutral on gold next week. Low liquidity ahead of the Christmas holidays means that the gold market will be trapped in its current range, he said, adding that a strong U.S. dollar and weaker equities will keep prices in check until the new year.