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Bearish sentiment rising in gold market as bond yields, U.S. dollar move higher

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(Kitco News) - Rising bond yields and renewed strength in the U.S. dollar are adding to the investor apathy in the gold market and boosting bearish sentiment among Wall Street analysts and retail investors, according to the latest results of the Kitco News Weekly Gold survey.

Sean Lusk, co-director of commercial hedging with Walsh Trading, said that gold will continue to be stuck as there is a lack of conviction in the marketplace.

"Long-term, we are bullish on gold because U.S. debt levels are just growing out of control, but in the short-term, rallies will continue to be sold," he said.

Lusk added that gold prices need to get back above $1,830 an ounce before it starts attracting new investor interest. He also noted that along with higher bond yields and the U.S. dollar, gold continues to compete against record valuations in equity markets.

"If gold has any sort of chance to push higher, we need to see some uncertainty in equity markets," he said.

This week 15 Wall Street analysts participated in Kitco News' gold survey. Bearish and neutral sentiment was tied this week, each garnering seven votes or 47%. At the same time, one analyst or 7% was bullish on gold.

This week, participation in Kitco News's online survey picked up compared to last week's two-year low; however, it still remains below the average participation rate.

A total of 757 votes were cast in online polls. Of these, 339 respondents, or 45%, looked for gold to rise next week. Another 294, or 39%, said lower, while 124 voters, or 16%, were neutral.

Kitco Gold Survey

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Along with the low participation rate, bullish sentiment among retail investors is at its lowest point since early March.

The shift in sentiment in the gold market comes as prices see a more than 2% drop this week. December gold futures last traded at $1,752.30 an ounce. The precious metal saw a sharp selloff Thursday following stronger than expected economic data, including a 07% rise in U.S. retail sales.

For many analysts, the gold market faces some difficult headwinds next week as the Federal Reserve holds its monetary policy meeting. There is growing uncertainty surrounding U.S. monetary policy as some economists have noted that recent economic data could support the Fed releasing its plans to reduce its bond-purchase next week.

However, some analysts also note that while they are bearish on gold, it could see a brief jump higher if the U.S. central bank delays those plans.

"I like gold staying soft in the first half of next week. I see $1780 as resistance," said Marc Chandler, managing director at Bannockburn Global Forex. "When the FOMC meeting is out of the way, we could see some "sell rumors of a hawkish fed" and gold may be bought."

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that he could also see gold push higher next week as Fed delays its tapering plans.

Lusk noted that while gold could catch a bid late next week, the Federal Reserve is still on a path of tighter monetary policy, and that could cap gold's gains in the near-term.

Adrian Day, president of Adrian Day Asset Management, was the lone bullish voice in this week's survey. He noted that the precious metal appears to be oversold in the near term.

"Gold is due for a rebound after the extraordinary drop over the past few days. Nothing fundamental has really changed," 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.