Gold markets fights the Fed but remains stuck in neutral
(Kitco News) - The gold market has been resilient in the face of aggressive interest rate hikes from the Federal Reserve; however, sentiment in the marketplace could indicate that prices remain in neutral territory as countervailing forces dominate the precious metal.
The latest Kitco News Weekly Gold Survey shows that Wall Street analysts see gold prices trading sideways in the near-term and retail investors, while bullish on the precious metal, sentiment is down from its recent highs.
Analysts have explained that the gold market is caught in a tug of war as the Federal Reserve tries to cool down the economy by tightening interest rates rapidly. Wednesday, the U.S. central bank raised interest rates by 75 basis points, its biggest hike in 28 years. At the same time, updated projections from the committee show interest rates rising potentially 3.5% by year-end.
Despite this hawkish stance, gold prices have managed to hold their ground.
"All things considered, gold's performance has been impressive. I'm encouraged by its price action this week," said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. "Gold is doing exactly what it should be. It's soaring against all other currencies except the U.S. dollar."
However, Cieszynski added that he is neutral on gold in the near term as prices remain caught between support at $1,800 and resistance at $1,880 an ounce.
This week 15 Wall Street analysts participated in Kitco News' gold survey. Among the participants, five analysts, or 33%, were on gold bullish in the near term. At the same time, three analysts, or 20%, were bearish on gold and seven analysts, or 47%, were neutral on gold next week.
Meanwhile, 1,145 votes were cast in online Main Street polls. Of these, 646 respondents, or 56%, looked for gold to rise next week. Another 280, or 24%, said lower, while 219 voters, or 19%, were neutral in the near term.
In the current environment of mixed sentiment, gold prices are looking to end the week down almost 2%, last trading around $1,842.10 an ounce; however, the gold market continues to outperform equities. The S&P 500 is seeing its second week of sharp losses falling nearly 6%.
Although interest rates are rising, analysts said that growing fears of a recession, reflected in the substantial equity market losses, will keep gold prices supported at around $1,800 an ounce.
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"Gold is stuck in a range and I don't see it beaking out anytime soon, said David Madden, Market Analyst at Equity Capital. "Interest rates are rising, which is negative for gold, but it's also negative for equity markets. Investors fleeing equity markets will likely want to protect some of their capital with gold."
Analysts also note that inflation, which the Federal Reserve sees as the biggest threat to the economy, will keep gold prices elevated.
Although gold is seen as a safe-haven asset, some analysts also warn that the rout in equity markets could work against the precious metal in the near term. Investors might be forced to liquidate their gold holdings to meet margin requirements.
"In a downdraft like this, there's nowhere to hide," said Adam Button, Chief Currency Strategist at Forexlive.com. "That said, gold will do better than most assets, and when the Fed hits pause or governments start spending again, gold will blow through $2,000."