Gold prices can go anywhere next week, analysts look to buy the dip
(Kitco News) - The gold market is once again caught in consolidation, trading in a narrow path with Wall Street analysts seeing no clear direction in the near-term, according to the latest Kitco News Weekly Gold Survey.
Analysts note that the gold market is seeing solid fundamental support as inflation pressures continue to rise; however, they also added that the precious metal's technical outlook appears to be bearish as prices have been unable to hold gains above $1,900 an ounce despite a drop in real yields and a weaker U.S. dollar.
Although sentiment among Wall Street analysts has shifted dramatically this past week, retail investors remain significantly bullish on gold.
This week, 15 analysts participated in Kitco News' gold survey. In an unprecedented result, there was a three-way tie, with each scenario garnering five votes.
Meanwhile, a total of 1,056 votes were cast in online Main Street surveys. Of these, 695 respondents, or 66%, looked for gold to rise next week. Another 181 respondents, or 17%, said lower, while 180 voters, or 17%, were also neutral.
Last week both retail investors and Wall Street analysts were bullish on gold; however, sentiment among analysts has been losing some conviction as prices closed last week below $1,900 an ounce.
The gold market is once again preparing for another weekly loss. August gold futures last traded at $1,881.80 an ounce, down 0.5% from the previous week.
Looking ahead, analysts said fundamentally it is challenging to short gold when inflation last month saw an annual increase of 5%, the most significant increase since August 2008. Rising inflation coupled with lower interest rates means that real yields have dipped further into negative territory.
Many analysts say that although gold prices are consolidating, the trend and momentum remain bullish as prices hold above $1,855 an ounce.
Ole Hansen, head of commodity strategy at Saxo Bank, said that while he is technically bearish on gold, he doesn't see a reason to short the market. He added that the market is losing some momentum and needs to find a new catalyst for the uptrend.
"I believe the Fed is wrong, but the market has bought the view that inflation won't have a major impact on the economy," he said. "I can see some short-term reasons to be negative on gold, but I struggle to see any strong fundamental reasons why you would want to be short."
Darrin Newsom, president of Darin Newsom Analysis, said that he is bearish on gold in the near term. He added that he is waiting for a deeper correction to jump into the market.
"We are targeting initial support at $1,871.80. I think we are going to take that out and the next target will be $1,827. That is where the buyers come back in," he said. "I don't see a huge selloff, it's not worth selling, but it would be an attractive area to buy."
Phillip Streible, chief market strategist at Blue Line Futures, said that he is also looking for lower prices in the near term. Still, the dip isn't exciting enough for him to be bearish. He added that he would like to see gold drop to $1,850 before he starts buying again.
Marc Chandler, managing director at Bannockburn Global Forex, said that he is bearish on gold as $1,900 has proven to be formidable resistance. He added that U.S. yields should push higher ahead on next week's Federal Reserve monetary policy meeting.
"I can see a return to the $1,855 area," he said. "The momentum indicators are still trending lower and prices seem to be forming a rounded topping pattern."