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Gold could be oversold as retail investors become less bullish

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(Kitco News) - Wall Street analysts are once again bullish on gold as the precious sees some technical support around $1,900; however, sentiment among retail investors weakened, according to the latest results of the Kitco News Weekly Gold Survey.

The shift in sentiment among Main Street investors comes as gold prices have struggled to find consistent bullish momentum in the face of a rising U.S. dollar. This past week the U.S. dollar index rallied to 103.93 points, its highest level in nearly 20-years. The U.S. dollar index is up 3.5% since briefly falling below 100 points April 19.

According to some economists, the U.S. dollar found strong momentum as the Federal Reserve prepares to raise interest rates by 50 basis points next week.

Meanwhile, at the same time, gold prices were unable to break above $2,000 and hit solid selling pressure, causing the price to drop nearly 5%. However, some analysts see signs of a shifting tide in the marketplace. The U.S. dollar looks to end Friday down from its highs, and gold manages to hold support above $1,900 an ounce.

"The upside move in the dollar is looking very stretched. That could bode well for gold should it finally pull back," said Matt Simpson, senior market analyst at City Index. "Given that gold closed higher Thursday despite the stronger dollar adds another level of confidence that its bearish move is running out of steam. At least over the next term."

This week 17 Wall Street analysts participated in Kitco News' gold survey. Among the participants, nine analysts, or 53%, called for gold prices to rise next week. At the same time, four analysts, or 25%, were bearish on gold in the near term, and three analysts, or 18%, were neutral on prices.

Meanwhile, 904 votes were cast in online Main Street polls. Of these, 446 respondents, or 49%, looked for gold to rise next week. Another 306, or 34%, said lower, while 152 voters, or 17%, were neutral in the near term.

Kitco Gold Survey

Wall Street

Bullish
Bearish
Neutral

VS

Main Street

Bullish
Bearish
Neutral

This is the first time bullish sentiment has dropped below 50% since late September. Although gold prices are off their lows, they are still ending the week with a 1% loss.

Looking ahead, the Federal Reserve's monetary policy meeting remains the most significant event for the precious metal. The Fed has signaled that it is preparing to aggressively tighten its monetary policy.

David Madden, market analyst at Equiti Capital, said that the U.S. dollar has gotten a little ahead of itself ahead of next week's monetary policy decision. He added that any neutral or dovish tone from the central bank could send the U.S. dollar lower, propelling gold prices higher.


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Madden added that the Federal Reserve might not want to commit to more than one 50 basis point hike.

"The last thing the Fed wants to do is make a policy mistake that pushes the economy into an early recess," he said.

Adrian Day, president of Adrian Day Asset Management, said he is also looking for the U.S. dollar to lose some ground next week.

"The monetary factors are bullish for gold, except for one thing:  the timidity or recklessness being exhibited by major central banks outside the U.S. is making the Federal Reserve appear almost responsible in comparison, boosting the dollar and weighing on gold. But the dollar may have peaked; and beyond that, the monetary dynamics mean that gold is the only asset that can be trusted," 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.