Wall Street turns bearish on gold price as markets fear hawkish Fed - Kitco's gold survey
This has been a complicated week for gold with mixed economic data and a hawkish Bank of Canada announcement taking momentum away from the precious metal.
December Comex gold futures were last trading at $1,778 an ounce, down 1% on the week. A higher U.S. dollar renewed the selling pressure on gold, especially when the metal reached a high of $1,806 an ounce earlier in the week. The majority of losses were reported on Friday when gold dropped more than $20 on the day.
Markets were also busy digesting a sharp slowdown in the U.S. economy reported in the third quarter. Also, the U.S. central bank's preferred inflation measure, the annual core PCE price index, remained elevated at 3.6% in September. And the Bank Of Canada surprised this week by ending its quantitive easing program and moving up its rate-hike timeline.
Kitco's gold price survey results showed that out of 13 participating analysts on the Wall Street side, 53.8% were bearish on gold's price direction next week. Another 30.8% were neutral, and only 15.4% were bullish.
The Main Street side remained optimistic. Of the 745 participating retail investors, 60.5% were bullish on prices next week, 22.5% were bearish, and 17% neutral.
It's the market pricing in a sooner-than-expected and a more aggressive central bank tightening, Bannockburn Global Forex managing director Marc Chandler told Kitco News.
"Color me bearish. The prospects of a continued re-pricing of central bank policy will likely weigh on gold. It is as if the market is saying the central banks recognize they are behind the inflation curve and will move expeditiously to correct that situation, with hikes starting as early as next week in the U.K.," Chandler said. "Gold tested the upper end of its recent range but sold off ahead of the weekend to new lows for the week. The October advance looks over. Initial target next week is $1,768 and then $1,757."
The stronger U.S. dollar is another reason why analysts are so bearish on gold prices in the short term.
"I am bullish on the U.S. Dollar for the coming week. With inflation pressures continuing to grow, I think the Fed may have to take a more hawkish tone at its meeting next week and either outright announce or hint toward the start of tapering asset purchases," said SIA Wealth Management Chief Market Strategist Colin Cieszynski.
The Federal Reserve announcement, scheduled for Wednesday, will be the major event to watch next week. Friday's employment data is also high on analysts' lists.
The neutral camp maintains that gold will remain stuck in its wide trading range until prices can successfully breach the $1,800 an ounce level.
"Trend is still up on the daily chart, but bulls faded Friday and need to show fresh power soon to keep it alive. Bearish weekly low close on Friday would give the bears some momentum early next week," said Kitco News senior analyst Jim Wyckoff.
In the short-term, gold needs to hold the $1,760 an ounce target, which is the next level of support, said Darin Newsom Analysis president Darin Newsom.
The inflation narrative and the market's perception of it remain the key drivers for gold going forward, noted Adrian Day, president of Adrian Day Asset Management.
"We are going to continue in this back and forth until more people realize that inflation is going to be more persistent than proclaimed and that higher consumer prices are caused, not by base effects or supply chain problems, but by monetary excess," Day told Kitco News. "The former can cause certain prices to increase; the latter can cause all prices to increase in aggregate. Investors can be pretty blind in the face of a slowing economy, rising inflation, and chaos in Washington with a pending debt crisis. But so long as stocks, and real estate, and bonds, and bitcoin and 12-year old sneakers continue to go up, who needs gold? They will find out soon enough."