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Gold price won't recover quickly after Friday's selloff, says Wall Street

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(Kitco News) After a drop below $1,825 an ounce on Friday, gold prices are not likely to recover quickly, at least according to the Wall Street part of the Kitco gold survey.

Gold saw a lot of pressure at the end of the week as a selloff in equities created a panic in the metals markets on Friday, analysts told Kitco News. On top of that, a surge in the U.S. dollar index made things worse for gold in the near-term.

"The market is sorting through the fallout of stimulus, inflation worries, and a U.S. dollar rebound. It will take some time before gold starts to climb again," said Adam Button, chief market strategist at Forexlive.com.

As equities moved down, people began to panic and started selling, said Phillip Streible, chief market strategist at Blue Line Futures. "We could go down below $1,800 and hit $1,795 if the U.S. dollar index keeps going up along with yields," Streible said.

Wall Street voters, comprised of analysts, were split between gold heading lower and sideways next week, and only the minority saw gold prices heading higher. Breaking down the results, out of 16 Wall Street votes, 37.5% saw lower prices, 37.5% were neutral, and 25% were bullish for next week.

Analysts also cited a bear flag pattern developing, which is a sign that more losses could be ahead. "An ominous bear flag pattern has formed on the daily bar chart, [which is why] I am steady-to-lower next week," said Jim Wyckoff, Kitco's senior analyst.

The same worries were not reflected in the Main Street part of the survey as a clear majority still saw prices heading higher next week. Out of 1,701 votes, 54.4% saw higher prices, 21.9% were neutral, and 23.7% saw lower prices next week.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

Gold tumbled on Friday amid a slate of negative U.S. macro data and higher U.S. dollar. Gold saw a drop of nearly $35 on the day. At the time of writing, gold was trading 0.35% lower than last week's close, with February Comex gold futures last at $1,829.70.

"Gold headed lower on a stronger dollar and weak technicals. Going back through 200-day moving average as a rally in the first half of the week fizzled. A break of $1,800 could test the end of Nov low near $1,765. That is roughly 50% of the rally off last March low. If that goes $1,690-$1,700 comes into view," said Marc Chandler, managing director at Bannockburn Global Forex.

Investors should be paying attention to the technical levels next week, advised Michael Moor, founder of Moor-Analytics.com.

"I am bearish going into next week but would be wary of lower time frame possible exhaustion levels below at $1,809.0-04.4 and $1,773.2-63.5. There is a higher timeframe (major) exhaustion further below in the $1,690.5-40.5 general area," he said. "The consolidation itself has a bullish formation across the top and a bearish formation across the bottom. So, we will either continue lower and take out the formation below."

If $1,825 an ounce is lost next week, the gold market could be looking at $1,800 and then $1,775, which is the primary line in the sand, said Peter Hug, Kitco Metals' global trading director.

However, Hug added that he sees a move below $1,800 as an unlikely one next week, remaining constructive on gold.

"Short-term economic perspective still looks troubling, which is why people are scared and are back to raising cash. The market is vulnerable. But I am looking for $1,825 to hold as support. Once Biden gets in, and money starts to flow, I am very constructive the metals," Hug said.

Many of the neutral votes for next week saw gold as stuck in a wide trading range between $1,800 and $1,900 an ounce.

"Investor confidence remains strong, keeping a headwind in front of gold. Investor focus in the coming week is likely to be more on U.S. earnings and maybe the inauguration than the ongoing vaccine/lockdown tug-of-war," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "The three central bank meetings of the coming week appear unlikely to bring in new stimulus unless the Bank of Canada surprises everyone."

Those who remained positive for next week saw Friday's drop as a temporary one and didn't cite higher yields as a major problem for the precious metal.

"Analysts say that rising rates are bad for gold. But rates barely nudged up—from 0.096% to a peak of 1.05% on the one year and are now back lower than they were before the 'move' started. Besides, it's real rates that are important for gold, and real rates remain negative," said Adrian Day, president and CEO of Adrian Day Asset Management.

Day added that the fundamentals for gold remain very positive. "There's increased spending by the new U.S. administration and Fed accommodation of that spending, a pattern reflected around most of the developed world. Gold flourishes win times of greater global liquidity," he said.

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