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Gold might not be able to hold $1,750 as bearish sentiment grows

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(Kitco News) - Rising bearish sentiment in the gold market does not bode well for prices next week as the precious metal tries to hold important support around $1,750 an ounce.

The latest results of the Kitco News Weekly Gold Survey show that Wall Street analysts are pessimistic on gold as the potential for tighter U.S. monetary policy supports the U.S. dollar and drives bond yields higher. At the same time, bullish sentiment among retail investors remains at a seven-month low.

Some analysts also noted that gold will continue to face anemic interest as focus remains on record valuation in equity markets and what has been an unstoppable rally.

This week 18 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 4, or 22%, called for gold prices to rise. At the same time, 11 analysts, or 61%, called for lower gold prices next week. Three analysts, or 17%, were neutral on gold in the near term.

Meanwhile, A total of 850 votes were cast in online Main Street polls. Of these, 382 respondents, or 45%, looked for gold to rise next week. Another 309, or 36%, said lower, while 159 voters, or 19%, were neutral.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

The strong bearish sentiment in gold comes after the Federal Reserve held its monetary policy meeting and suggested that it could release its plans to reduce its monthly bond purchases after its November meeting. The central bank's updated economic projections also showed that the committee sees the potential for an interest rate hike in December 2022 and that rates could rise to 1% in 2023.

Some analysts have noted that the more-hawkish-than-expected sentiment from the U.S. central bank is strengthening the U.S. dollar and pushing bond yields higher, two significant headwinds for gold.

"The breakout in 10-year yields this week is signaling a change in trend in markets," said Adam Button, chief currency strategist at Forexlive.com. "Initially, that will keep gold pressured.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that he is also bearish on gold as the Federal Reserve looks to shift its monetary policy before the end of the year.

"I think with the Fed moving toward tapering, the U.S. dollar may continue to attract support, keeping a headwind in front of gold," he said.

However, while bearish on gold in the near term, some analysts see the potential for prices to find a bottom. Darin Newsom, president of Daren Newsom analytics, said that gold prices appear to be oversold.

"I think with the Fed moving toward tapering, the U.S. dollar may continue to attract support, keeping a headwind in front of gold," he said. "Daily stochastics are also below the oversold level of 20%, setting the stage for a potential bullish crossover at some point early next week. This would be a signal the short-term trend is set to turn up."

Marc Chandler, managing director at Bannockburn Global Forex, said that gold's selloff could be limited as the current rise in bond yields has been exaggerated.

"While still a bear, I see scope for a bounce next week, might be from a little lower level, say $1,730 or $1,735 in the spot market," he said.

Although the sentiment is primarily negative in the gold market, there are still some bullish holdouts.

Adrian Day, president of Adrian Day Asset Management, described the Fed's attempt to shift its monetary policy as a dog "bark is worse than its bite.'

"Once it starts reducing asset purchases, the market will realize that it is taking only tiny steps—reducing the rate of purchases—and doing nothing to actually shrink the bloated balance sheet. That will be the bottom for gold," he said.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is bullish on gold in the near term as rising energy prices, especially in Europe, drive inflation higher. He added that investors are also ignoring the growing risk associated with Chinese property developer juggernaut Evergrande's potential bond default.

He noted that the looming credit and liquidity crisis could create fresh diversification demand.

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.