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Gold market is ugly with no clear price direction

Kitco News

(Kitco News) - Hawkish comments from Federal Reserve Chair Jerome Powell are taking a toll on sentiment in the gold market, according to the latest Kitco News Weekly Gold Survey.

The latest survey shows no clear short-term direction for the gold market as prices hold critical support levels but remain below $1,800 an ounce. Wall Street Analysts are stuck in a three-way-tie on gold's short-term price outlook for the second consecutive week.

At the same time, sentiment among retail investors dropped this past week sharply. Market analysts note that gold is struggling to attract new bullish momentum. They said that rising inflation fears are being met with expectations that the Federal Reserve could tighten monetary policy faster than expected.

The gold market couldn't find a sustainable bid even following weaker than expected nonfarm payrolls data. On Friday, the U.S. Labor Department said that 210,000 jobs were created in November, significantly missing expectations. Consensus forecasts were looking for job growth of around 550,000.

However, some economists have said that while the unemployment data was disappointing, it isn't weak enough to stop the Federal Reserve from increasing the pace of tapering its monthly bond purchases.

This week 14 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 4, or 27%, called for gold prices to rise. At the same time, bearish and neutral investors were tied, each garnering five votes or 36%.

Meanwhile, 984 votes were cast in online Main Street polls. Of these, 501 respondents, or 51%, looked for gold to rise next week. Another 319, or 32%, said lower, while 164 voters, or 17%, were neutral.

Sentiment is down from the previous survey, which showed that 67% of Main Street was bullish on gold. The shift comes as gold prices look to end their third week in negative territory. February gold futures last traded at $1,777.10 an ounce, down 0.6% from last week.

Kitco Gold Survey

Wall Street

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Bearish
Neutral

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Main Street

Bullish
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Neutral

Nicholas Frappell, global general manager at ABC Bullion, said that support at $1,760 an ounce is a critical level to watch. He added that if gold can hold above this level, he sees prices testing near-term resistance at $1,811 an ounce.

Frappel added that the disappointing headline employment data and more COVID0-19 news as the Omicron virus spreads will continue to support prices.


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Adam Button, chief currency strategist at Forexlive.com, said that he is also bullish on gold as new COVID-19 fears continue to grow. He added that the new Omicron virus means weaker economic growth and looser monetary policy.

Although Powell has increased his hawkish rhetoric this past week, saying that now is the time to "retire" the word 'transitory" when describing inflation, some analysts don't expect to see a significant change in monetary policy anytime soon.

"We have been saying for some time that the economy is not as strong as the apologists would have you believe; that inflation is likely to last longer and be stronger; and that the Fed lacks the guts to properly control inflation. This is a "perfect storm" for gold prices," said Adrian Day, president of Adrian Day Asset Management.

However, other analysts are not convinced that gold can withstand growing expectations that the Fed will tighten monetary policies more aggressively than expected to combat inflation.

Mar Chandler, managing director at Bannockburn Global Forex, said that he sees gold prices retest support at $1,750 an ounce in the near term as the Fed is still reducing its monthly bond purchases and looks to speed up that process.

Ole Hansen, head of commodity strategy at Saxo Bank, said it is difficult to be bullish on gold where rallies are met with renewed selling pressure.

"Gold's less than impressive behavior continued during a week where it failed to find a bid despite raised Omicron concerns sending Treasury yields lower and, at least temporarily, the dollar lower as well," he said.

He said he is also watching to see if initial support at $1,760 will hold in the near term.

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.