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Wall Street bears are back and looking for lower gold prices

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(Kitco News) - A growing divergence in global interest rates, which is supporting the U.S. dollar, is generating some bearish sentiment among Wall Street analysts even as retail investors remain bullish on the precious metal.

This past week the European Central Bank reaffirmed its commitment to maintain its ultra-loose monetary policy for the foreseeable future in an effort to push inflation back to 2%. The ECB's commitment "to respond forcefully and persistently" to push inflation higher is in stark contrast to the Federal Reserve, which is currently talking about tapering its monthly bond purchase program.

David Madden, market analyst at Equiti Capital, said that the U.S. dollar looks relatively undervalued in the current environment and the growing monetary policy gap between the Federal Reserve and the ECB. He added that gold could continue to struggle in the near term in the face of further U.S. dollar strength.

Madden added that an improving U.S. economy, propelling equity markets back to record highs, will also be a headwind for gold.

"Why would you have money languishing in the gold market when you can put it to work in equities," he said.

This week 15 Wall Street analysts participated in Kitco News' gold survey. Among the participants, nine, or 60%, called for gold prices to fall next week; simultaneously, only two analysts, or 13%, expect to see higher prices next week, and four analysts, or 27%, expected to see sideways trading in the near term.

Meanwhile, 571 votes were cast in online Main Street polls. Of these, 315 respondents, or 55%, looked for gold to rise next week. Another 146, or 26%, said lower, while 110 voters, or 19%, were neutral on the price.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

Although Main Street remains bullish on gold, interest in the precious metal is clearly waning. Participation in the online survey is at its lowest point since late November 2019.

The mixed sentiment in gold comes as prices prepare to close the week in negative territory. August gold futures last traded at $1,804.70 an ounce, down 0.5% since last Friday.

Gold's lackluster performance lately has been reason enough to become bearish on the precious metal for some analysts. Gold prices have been unable to break its chains at $1,800 an ounce even as the yield on 10-year notes dropped to their lowest point since February.

Now that bond yields have pushed higher off of Tuesday's multi-month low, some analysts said that gold could end up falling below $1,800 an ounce.

"I am inclined to see it lower next week, mostly driven by what I expect to be rising U.S. yields," said Marc Chandler, managing director at Bannockburn Global Forex.

Colin Cieszynski, chief market strategist at SIA Wealth Management Inc, said that he is also watching the June lows at $1,760 as a major support level.

Nicholas Frappell, global general manager at ABC Bullion, said that he sees gold prices stuck in a range with risks to the downside in the near term due to growing momentum in the U.S. dollar.

"Below US$1,790, gold will be vulnerable to a slightly deeper move lower," he said. "I see upside rallies finding resistance at US$1812 and US$1819."

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said that gold is relatively strong as it continues to hold support above $1,800 an ounce; however, he added that the growing economic recovery in the U.S. means that real interest rates will start to move higher and that will prove to be a difficult headwind for gold.

He added that in the current environment, he sees gold on the defensive in the near term.

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.