Gold price needs to consolidate as sentiment falls among Wall Street analysts
(Kitco News) - Although many Wall Street analysts expect gold prices to remain above their breakout levels, sentiment has fallen from last week as the precious metal is likely to consolidate in the near term.
The gold prices didn't see much follow-through following the previous week's breakout rally. However, many analysts have said that they are encouraged because prices have held well above critical support levels, trading close to their recent five-month highs.
"I was looking for a pullback to $1,830 and we just haven't seen it," said Bill Baruch, president of Blue Line Futures. "As long as we hold above that level, the trend remains very bullish."
Ole Hansen, head of commodity strategy at Saxo Bank, also noted gold's relatively strong performance this week. However, he added that the market needs to see renewed demand for gold-backed exchange-traded products to ignite a more significant rally.
This week 17 Wall Street analysts participated in Kitco News' gold survey. Among the participants, eight analysts, or 47%, called for gold prices to rise next week. At the same time, four analysts, or 24%, were bearish on gold in the near term, and five analysts or 29% were neutral on prices.
Sentiment had dropped sharply among Wall Street analysts compared to last week when 83% were bullish.
Meanwhile, A total of 1,057 votes were cast in online Main Street polls. Of these, 747 respondents, or 71%, looked for gold to rise next week. Another 162, or 15%, said lower, while 148 voters, or 14%, were neutral.
Sentiment among retail investors is holding at its highest level since May as participation in the online surveys continues to pick up. Gold prices are ending the week with a loss. December gold futures last traded at $1,849.50an ounce, down 1% from last Friday.
Many analysts remain bullish on gold as global inflation pressures continue to rise. This week inflation in the U.K. rose to its highest level in a decade; at the same time, Canadian consumer price pressures rose to an 18-year high.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that he remains bullish on gold as inflation hasn't gone away, "and gold is consolidating nicely above its recent breakout point."
While some analysts still see long-term potential in gold, they also said that a consolidation would be healthy for the current uptrend.
Adrian Day, president of Adrian Day Asset Management, said that he expects the current holding pattern to be "short and shallow."
"Sentiment is turning, and with more spending out of Washington, with increased inflation out of North America and Europe, with the European Central Bank's Christine Lagarde blind to what is happening…the fire is set for an explosive move by year-end," he said.
Nicholas Frappell, global general manager at ABC Bullion, said that he expects gold prices to be weaker next week as the precious metal could not break above $1,873 an ounce.
"If the price doesn't break higher and closes below US$1873 this week, then short-term players may try the downside, especially as the dollar is finding some support," he said.
Marc Chandler, managing director at Bannockburn Global Forex, said that he is watching support at $1,850 an ounce. He added that a stronger U.S. dollar could pose a headwind for gold in the near term.
"The momentum indicators are extended but look poised to roll over, but the weekly indicators suggest more gains are likely. As long as $1850 holds, the market can take another run at $1900-$1915. A break of $1850 signals $1832 and maybe $1820," he said.