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Panic selling in gold could last a little longer as Wall Street turns bearish on gold, but many look to buy the dip

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(Kitco News) - The Federal Reserve unleashed considerable panic in the precious metals market. While there is still some bullish sentiment in the marketplace, some market analysts say that it could take some time for gold to work through all the selling pressure.

The latest Kitco News Weekly Gold Survey results show that sentiment in the precious metals market has dramatically shifted as the gold ends the week down $100. The yellow metal is seeing its worst weekly performance since March 13, 2020, when financial markets collapsed due to the spreading COVID-19 pandemic.

Sentiment among retail investors is at its lowest point since early April when gold prices were just starting their two-month rally.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that while the move to the downside is significant, it's not surprising. He added that technically, gold prices were overbought ahead of the Federal Reserve's meeting. At the same time, the U.S. dollar was oversold. He said that he sees the price action as one big corrective move from over-stretched positioning for all financial markets.

"The entire market was looking for any excuse to rebalance and they found one in the Fed," he said. "I think gold prices have a little further to go on the downside, but I think a move to $1,700 would attract a lot of buyers."

This week 18 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 10, or 56%, called for gold prices to fall; simultaneously, bullish and neutral analysts were tied this week, with each viewpoint garnering four votes, or 22%.

Although Wall Street analysts are bearish on gold in the near term, many analysts see the current price action as short-term selling pressure and the market can still bounce back.

Meanwhile, 2,174 votes were cast in online Main Street polls. Of these,1,127 respondents, or 52%, looked for gold to rise next week. Another 670, or 31%, said lower, while 377 voters, or 17%, were neutral.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

Last week, the survey showed that sentiment among Wall Street analysts was caught in a three-way tie; at the same time, retail investors were bullish on gold.

Gold prices are looking to close the week down more than 5% as prices trade near a two-month low below $1,800 an ounce. The selloff came after the Federal Reserve released updated economic projections, which showed that the committee saw the potential to raise interest rates two times in 2023. Three months ago, the committee expected to keep interest rates unchanged until at least 2024.

The central bank also increased its outlook for economic growth, seeing U.S. GDP rising 7% this year.

According to many analysts, although potential rate hikes are still two years away, the shift in sentiment was enough to spook investors across the board.

"This isn't about the actual forecast. I'm not paying attention to projections two years from now. Still, they show that the Fed is starting to think about how they are going to end this loose monetary policy," said Cieszynski. "You can't continue to print money forever."

Some analysts have said that gold's reaction to the Federal Reserve's projection is overdone. When the dust settles, lower prices will prove to be a good buying opportunity, they added.

"We have been waiting for this correction and we are slowly starting to buy," said Phillip Streible, chief investment strategist at Blue Line Futures. "We want to start positioning ourselves and prepare for weaker growth and higher inflation in the back half of the year."

Adrian Day, president of Adrian Day Asset Management, said that he expects to see higher prices in the near term.

"To paraphrase, the Fed chairman essentially admitted that they have no clue how to get out of this corner they have boxed themselves into. The Fed said there would be no rate hikes for two years, though they would start to talk about when to talk about maybe, perhaps starting to taper," he said.

"This was wildly bullish for gold, but all the market (or computer algorithms) heard was "higher rates ahead," he added. "I suspect in coming days, the narrative will change and investor sentiment will shift from panic to bullish."

Christopher Vecchio, senior market strategist with DailyFX.com, said that he is not expecting prices to push back to record highs by the end of the year because of the technical damage done to the gold market. However, he added that he is not bearish gold.

He said he is neutral on gold for the short-term and will wait for some stability in the marketplace before he starts buying again.

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.