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Gold market sees mixed sentiment as failed short squeeze weighs on retail investors

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(Kitco News) - Gold prices struggling to find bullish momentum is creating some mixed sentiment in the marketplace, according to the latest Kitco News Weekly Gold Survey.

While a clear majority of Wall Street analysts expect to see higher prices next week, less than 50% of retail investors are bullish on the precious metal.

The shifting sentiment in gold comes as retail investors, organized through social media, could not generate a sustainable short-squeeze in the silver market. Silver prices below $27 an ounce are pretty much exactly where they were last week. Prices have fallen sharply after hitting nearly an eight-year high on Monday.

According to some analysts, the failed #silversqueeze, could be weighing on gold as retail investors take a break from the precious metals market.

This week, 14 analysts participated in the survey. A total of nine voters each, or 64%, called for gold prices to rise next week; meanwhile, four participants, or 29%, said they were bearish, and one analyst, or 7%, said they were neutral on gold next week.

Meanwhile, among Main Street investors, 1,823 votes were cast in the online survey. Among those, 873, or 48%, said they were bullish on gold next week. Another 568 participants, or 31%, said they were bearish, while 382 voters, or 21%, were neutral on the precious metal.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

Main Street is the most bearish on gold they have been since late-November, the last time gold prices fell below $1,800 an ounce. Last week both Wall Street analysts and retail investors were bullish on gold. April gold futures last traded at $1,809.30 an ounce, down 2% from the previous week.

Ole Hansen, head of commodity strategy at Saxo Bank, said that not only is gold struggling to find bullish traction as bond yields push higher, but he added that the failed short-squeeze in silver is also weighing on sentiment.

"I’m worried that silver has not yet finished puking out recently established longs," he said. "With these narratives in mind, precious investments increasingly looks like a patience game until inflation starts to show up in earnest, which we believe it will."

Although retail investors are bearish on gold, many analysts remain bullish as the U.S. dollar is expected to see continued selling pressure next week.

The U.S. dollar suffered Friday after the U.S. economy only created 45,000 jobs in January, representing about only half of expectations calling for gains of around 100,000 jobs. Many economists note that the January nonfarm payrolls report shows how difficult it will be for the economy, devastated by the COVID-19 pandemic, will be to bring back the nearly 10 million jobs lost. They note that the weak labor market will force the Federal Reserve to maintain its ultra-accommodative monetary policy for the foreseeable future.

Darin Newsom, president of Darin Newsom Analysis, said that although gold looks week in the mid-term, the precious metal could see a bounce next week as the U.S. dollar appears to be making a near-term top.

Robin Bhar, independent market analyst and the lone neutral vote this week, said that the war between growth and inflation continues to dominate the gold market. With expectations that the U.S. economy sees stronger than expected growth this year, bond yields have risen, which has weighed on gold, he said.

If gold prices are going to regain their lost ground, Bhar said that the market needs to see signs of rising inflation pressures.

"I think as activity picks up, we will start to see rising inflation, but until that happens, I think gold just continues to consolidate," he said. "I don’t think you should be selling gold anytime soon, but I don’t see any catalysts on the horizon that will drive prices higher."

Charlie Nedoss, senior market strategist with LaSalle Futures Group, said that gold’s latest drop below $1,800 an ounce did enough damage to the precious metals outlook to shift momentum to the downside.

"Right now, the market feels like it wants to retest the November lows," he said," he said.

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.