Expect gold price volatility as Wall Street bears take control
(Kitco News) - Volatility is alive and kicking in the gold market as Wall Street bears take near-term momentum away from the bulls with prices expected to fall next week, according to the latest Kitco News Weekly Gold Survey.
However, Main Street investors refuse to give up on the gold rally as they continue to expect prices to push higher next week.
Many analyst see the potential correction in gold as a new buying opportunity with global uncertainty not going away anytime soon.
“I think you have to be neutral and patient because you can make a case for gold prices to go higher and lower. If [U.S.-China] trade talks progress then equities will push higher and that will weigh on gold but if talks break down then all bets are off and gold go higher,” said Sean Lusk, co-director of commercial hedging at Walsh trading.
This week, 17 market professionals took part in the Wall Street survey. Five analysts or 29% said they see higher prices next week. Eight analysts, or 47%, predicted gold would fall. The remaining 4 voters, or 24%, saw a sideways market or else were neutral.
Meanwhile, 954 respondents took part in an online Main Street poll. A total of 566 voters, or 59%, called for gold to rise. Another 221, or 23%, predicted gold would fall. The remaining 167 voters, or 18%, saw a sideways market.
In the last survey, both Wall Street and Main Street proved wrong as both sides called for higher prices for this week. As of 1:17 p.m. EST, December gold futures last traded at $1,489 an ounce, down 1.6% from the previous week.
Wall Streets’ record is now 19-17 year to date, meaning respondents have been right 52% of the time. Meanwhile, Main Street’s record fell to 18-18, meaning this group has been right 50% so far this year.
With gold ending the week solidly below $1,500 an ounce, risk-on sentiment is picking up in the marketplace on rising optimism regarding a potential trade agreement between China and the U.S. and a potential agreement between the United Kingdom and Europe ahead of the Oct. 31 Brexit deadline.
But it’s not just gold, analysts note that improving investor sentiment has dragged down other safe-haven assets like the U.S. dollar and bond markets and have boosted equity markets.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that the selling momentum in the marketplace means that gold prices could easily retest the lows at the start of the month at $1,465. He added that he is also watching critical support at $1,450 an ounce.
“I think we would need to see significantly negative news to reverse the current trend,” he said. “Both momentum and prices are pointing lower.”
Charlie Nedoss, senior market strategist with LaSalle Futures Group, said that he also expects to see lower prices in the near-term. However, he added that he does not expect gold’s broader uptrend to end anytime soon. “I think lower prices will be an attractive entry point for new gold bulls,” he said.
However, some analysts are expecting that gold will continue to shine as uncertainty continues to dominate the marketplace.
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, said he expects to see higher prices in the near-term.
“I suspect many on the sidelines will see the latest pullback, caused by optimism on deals on China trade and Brexit, as an opportunity to buy,” he said. “Either deal may not come to fruition, but beyond that, there are reasons to buy gold in the current environment not affected by any success on the China trade or Brexit fronts.”
Matt Simpson, senior analyst at City Index, said that he is bearish on gold next week as trade tensions ease; however, he also sees other factors affecting the gold market.
“Market positioning has been screaming over-extension for several weeks to the bull-camp, which has kept us on our toes for a correction. Yet at the same time, geopolitical tensions throw a level of support under gold – and todays missile attack on the Iranian oil tanker serve as a good reminder that all is not well in the Middle East,” he said. “So we see the risks as skewed to the downside, but there’s clearly several contradictory forces at play to make price action choppy.”