The bears are back as gold price drops nearly $50, next target is $1,750
(Kitco News) - Sentiment in the gold market has been fairly volatile as prices have been stuck in a range; however, the outlook is now clearly bearish as the precious metal falls through critical support levels following stronger than expected employment data.
A clear majority of retail investors remain bullish on gold in the near term; however, there was not one bullish vote among Wall Street analysts in this week's Kitco News Gold Survey. Sentiment has dramatically shifted 180 degrees as there were no bearish votes in the previous survey.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that it is difficult to be bullish on gold when it faces strong fundamental headwinds, including rising bond yields and a stronger U.S. dollar.
"Gold looks like it is ready to roll down the hill," he said. "If $1,750 doesn't hold, then the next major support is between $1,700 and $1,680."
This week 15 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 13, or 87%, called for gold prices to fall next week; simultaneously, only two analysts, or 13%, expect to see sideways trading in the near term.
Meanwhile, 1,128 votes were cast in online Main Street polls. Of these, 603 respondents, or 53%, looked for gold to rise next week. Another 305, or 27%, said lower, while 220 voters, or 20%, were neutral on the price.
The mixed sentiment in the marketplace comes as gold prices look to end the week solidly in the negative territory near a one-month low as prices broke through critical support at $1,790 an ounce. December gold futures last traded at $1,763.50 an ounce, down nearly 3% from last week.
Although gold was under pressure all week, after being unable to break resistance at its 200-day moving average of around $1,830, most of the selling pressure came Friday after the U.S. Labor Department said that 943,000 jobs were created in July, significantly beating consensus forecasts.
The latest employment data has pushed equity markets to record highs, strengthened the U.S. dollar, and pushed bond yields higher. All factors are bearish for gold.
Economists have also noted that the positive jobs numbers also lays out a path for the Federal Reserve to reduce its bond purchase program by the end of the year. Many analysts are expecting the central bank to lay out the play either at the Jackson Hole summit later this month or at the September monetary policy meeting.
Analysts have noted that gold could struggle in the near term as the U.S. central bank looks to tighten its ultra-accommodative monetary policies.
"I look for a retest on $1750, which also corresponds to the measuring objective of a triple top near $1830-$1835," said Marc Chandler, managing director at Bannockburn Global Forex. "A triple top is also understood as a derivative of head and shoulders pattern. A break of $1750 could see $1735."
Mark Leibovit, publisher of VR Metals/Resource Letter, said that gold's failed rally at the start of the week and the new selling pressure raises the risk of a "significant washout" in the near term.
Adrian Day, president of Adrian Day Asset Management, said he was neutral on gold in the near term, and the pullback is a healthy, much-needed correction. He added that he is watching momentum in the U.S. dollar.
"That can have only a little more to run at best," he said. "There is a constant battle between the U.S.'s large and worsening twin-deficits (bad for a currency) and the higher yields on offer from the U.S."
Although sentiment in the gold market is clearly bearish, some analysts have said that investors are paying too much attention to the short-term price action. Many analysts note that interest rates won't be going very high in the long term, which is still a positive environment for the precious metal.