Uncertainty rocks equity markets but boosts bullish sentiment in gold
The latest results of the Kitco News Weekly Gold Survey show that both Wall Street analysts and Main Street investors are solidly bullish on the precious metal next week. Not only has gold found some technical momentum after falling into oversold territory, but analysts note its safe-haven allure is once again shining bright.
Gold's rally this week comes as U.S. equity markets end their seventh consecutive week in negative territory. Wednesday, the S&P dropped 4%, seeing its worst one-day selloff since June 2020, when the global COVID-19 pandemic first roiled markets.
Phillip Streible, chief market strategist at Blue Line Futures, said that he is bullish on gold as investors look to hedge against further financial market weakness. He added that in the current environment, he sees gold and the U.S. dollar moving in tandem as safe-haven assets.
"Equity market conditions can still get a lot worse," he said. "There are signs that economic conditions in the U.S. are starting to deteriorate," he said.
U.S. equity markets have been deteriorating as rising inflation pressures take their toll on corporate earnings. At the same time, rising interest rates are tightening financial market conditions.
This week 16 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 12 analysts, or 75%, called for gold prices to rise next week. At the same time, one analyst, or 6%, was bearish on gold in the near term, and three analysts, or 19%, were neutral on prices.
Meanwhile,1,003 votes were cast in online Main Street polls. Of these, 558 respondents, or 56%, looked for gold to rise next week. Another 243, or 24%, said lower, while 202 voters, or 20%, were neutral in the near term.
The bullish sentiment comes as gold prices end the week with a nearly 2% gain. June gold futures last traded at $1,840.50 an ounce.
Many analysts are looking for gold prices to push through initial resistance at $1,850 an ounce as the U.S. dollar appears to be losing some momentum after trading near a 20-year high. The U.S. dollar index is looking to end the week down 1.4%.
At the same time, bond yields have lost further ground after hitting a three-year high above 3% two weeks ago.
"The recent U.S. dollar rally appears to be subsiding, gold appears to be turning back up technically, and there remains a lot of financial market uncertainty and volatility out there," said Colin Cieszynski, chief market strategist at SIA Wealth Management.
Peter Grosskopf, CEO of Sprott Inc, said that gold is due for a bounce higher in the near-term as bearish sentiment move close to extreme levels.
"Gold was getting pretty washed out, so I am comfortable saying that price should go higher as sentiment turns bullish," he said. "Gold continues to do its job and is once again an important risk-off asset."
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Adrian Day, president of Adrian Day Asset Management, said that he is bullish on gold as market volatility rises on the growing risks that the U.S. economy will fall into a recession, pushed there by either rising inflation or a policy mistake from the Federal Reserve.
"It is increasingly clear that the Fed will not be able to bring down inflation––certainly not to its artificial and perverse 2% target––without causing a recession. This Fed will not have the stomach for continuing with its course as the economy weakens," he said.
However, not all analysts are bullish on gold in the near term. David Madden, market analyst at Equiti Capital, said that he expects the U.S. dollar to keep a cap on gold prices. He added that Europe and the U.K. are closer to falling into inflation-induced recessions than the U.S.
"I don't think the U.S dollar has topped out just yet. More 50-basis point hikes will keep coming and will continue to support the U.S. dollar," he said. "You have to put your money somewhere and right now, that is in the U.S."
Although gold prices could head lower next week, Madden said that he does see a floor around $1,800 an ounce. He added that market volatility and further equity weakness will continue to support gold prices as a safe-haven asset.