Wall St. mixed on gold prices; Main St. remains bullish
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(Kitco News) - Wall Street is mixed on the direction of gold prices next week, although Main Street remains bullish, according to the weekly Kitco News gold survey.
The largest bloc of voters on Wall Street is bearish after Friday’s heavy sell-off in the wake of U.S. employment data. They cited continued strength in equities as a factor drawing potential buying away from gold, as well as a weaker technical-chart picture for the metal. Meanwhile, a little more than a third of the voters called for gold to bounce, particularly when considering all of the monetary stimulus from the Federal Reserve.
Eight out of 17 Wall Street voters, or 47%, called for gold prices to weaken next week. Six voters, or 35%, predicted higher prices. Three respondents, or 18%, were neutral.
A total of 1,367 votes were cast in an online Main Street poll. Of these, 842 respondents, or 62%, looked for gold to rise in the next week. Another 282, or 21%, said lower, while 243, or 18%, were neutral.
In the last survey for the current trading week now winding down, Wall Street and Main Street respondents alike were bullish. Shortly before 11:30 a.m. EDT on Friday, Comex August gold was 4% lower for the week so far to $1,682.40 an ounce.
The contract was down 2.6% Friday alone, hitting low of $1,681.60 that was its weakest level since April 21. The main factor was a 2.5 million rise in May nonfarm payrolls. Economists expected another big drop, but the data instead showed that Americans were returning to work following COVID-19 lockdowns.
"I am bearish on gold for next week," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "Gold stocks broke down this week and could lead the metal price lower."
Charlie Nedoss, senior market strategist with LaSalle Futures Group, cited potential for further downside in the near term after gold’s technical-chart picture deteriorated. He pointed out that the metal has fallen below its 50-day moving average, and prices also have put in a series of lower daily lows and lower highs.
"You took a lot of steam out of this thing," he said. He later added, "To me, the trend is changing."
Jim Wyckoff, senior technical analyst with Kitco, said he looks for gold to be steady to lower after a big increase in risk appetite this week. Stocks have continued their relentless recovery, with the Dow Jones Industrial Average more than 1,000 points so far Friday.
Adam Button, managing director of ForexLive, also said lower.
"The big risk in the gold trade next week is that the Federal Reserve highlights that the economy hasn't been as bad as feared and hints that it will ease up in the stimulus," he said "That would further push up Treasury yields and dampen the short-term demand for safety.
"At the same time, the low-rate and fiscal spending story isn't going to go away. This decade is going to be an era of debt monetization and gold will shine as currencies fall. For now though, that's simply not the ‘exciting’ trade, and investors are comparing gold to the scores of company stocks that are jumping double digits daily."
Richard Baker, editor of the Eureka Miner’s Report, said gold could fall to around $1,665 an ounce and silver to $17.25.
"After a stunning upside employment report, domestic equities are on a tear; gold is not," Baker said. "Falling like a rock below the key $1,700 level, the yellow metal is trying to find footing at April lows as market participants quickly rotate from safe-havens to risk-on assets.
Meanwhile, he pointed out, copper is continuing a rally, rising above $2.50 a pound. "This is important because the red metal is a key indicator of global recovery," Baker said.
Still, Baker sounded a note of caution for gold-market bears: "Markets could quickly switch back to a ‘risk-off’ posture if the current rise in U.S. COVID-19 cases persists, slowing the reopening process."
Meanwhile, Phillip Streible, chief market strategist with Blue Line Futures, is among those who look for gold to rebound despite the surprise jobs report that "blind sided" markets.
"Interest rates [on Treasury notes] spiked after the number," Streible said. "I think in order to maintain a recovery, the Fed will have to intervene on interest rates and target low levels. As a result of that, I think gold futures will have a rebound from this low."
Bob Haberkorn, senior commodities broker with RJO Futures, said he suspects gold may "overshoot" to the downside after the report and thus turn higher again next week.
"The medicine the Fed used to help out the economy after the coronavirus is still out there," he said. "There is still a lot of QE [quantitative easing] money out there in the system right now.... I still like the upward trend in gold and silver. It’s down a bit today, because equities are so strong. But next week I think you’ll see it up."
George Gero, managing director with RBC Wealth Management, said some of gold’s weakness on Friday was "selling begets selling" as stops were triggered on the descent. Stops are pre-placed orders activated when certain chart points are hit. But once the dust settles, Gero looks for a bounce.
"I expect buyers to emerge from major sell-offs," he said, commenting that the focus will be economic and political headlines, including China-U.S. trade tensions and geopolitical worries about the Middle East.
"After a wild week where hopes of an economic recovery weighed on prices, next week a focus on inflation should have gold return to its upward track," said Phil Flynn, senior market analyst with at Price Futures Group.
Kevin Grady, president of Phoenix Futures and Options, described himself as neutral for next week.
"Although gold his getting hit hard due to the stellar nonfarm payroll report, I still believe that due to the increased central-bank balance sheets, gold should remain stable and eventually rally," he said.