Bearish sentiment points to gold price falling below $1,700 next week
(Kitco News) - Growing bearish sentiment among Wall Street analysts and Main Street investors points to gold pushing below $1,700 an ounce in the near term, according to the latest Kitco News Weekly Gold Survey.
Sentiment in the gold market has soured in the few weeks as investors expect the Federal Reserve to aggressively raise interest rates to bring down inflation. In this environment, real yields have pushed higher along with the U.S. dollar, creating two major headwinds for the precious metal.
Gold dropped to nearly a one-year low this week as the U.S. dollar hit a significant milestone: hitting parity with the euro for the first time in 20 years. Analysts have said that although gold has fallen to S1,700, there has been no major capitulation move in the market.
Frank McGee, precious metals dealer at Alliance Financial, said that he expects gold prices to drop lower as more traders are forced to liquidate their losing gold positions.
Jim Wyckoff, senior technical analyst at Kitco.com, noted that the technical outlook shows that bearish traders are in control of the market in the near term.
"Charts are fully bearish and path of least resistance for prices remains sideways to lower," he said.
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This week 16 Wall Street analysts participated in Kitco News' gold survey. Among the participants, three analysts, or 19%, we're bullish on gold in the near term. At the same time, six analysts, or 50%, were bearish on gold, and five analysts, or 31%, were neutral on the precious metal next week.
Meanwhile, 1,107 votes were cast in online Main Street polls. Of these, 441 respondents, or 40%, looked for gold to rise next week. Another 458, or 41%, said lower, while 208 voters, or 19%, were neutral in the near term.
Not only has bearish sentiment among retail investors picked up this week, but participation in the survey reached a one-month high, indicating that more investors are once again paying attention to the market.
While there is a strong bearish sentiment in the marketplace, some analysts are not ready to give up on the precious metal just yet.
Some analysts have said gold is due for a bounce as it is technically oversold.
"Short-term, the August contract is sharply oversold. If the contract can hold Thursday's low of $1,695 Friday, it could put itself in a position to rally next week," said Darin Newsom, president of Darin Newsom Analysis. "Additionally, the U.S. dollar looks to be short-term overheated and could weaken a bit next week."
Adam Button, chief currency strategist at Forexlive.com, said that he is bullish on gold as markets start to rethink expectations of a 100-basis point hike later this month. Markets started to price in the aggressive move after U.S. CPI showed inflation rising to 9.1% in June, a 40-year high.
At its peak, markets were pricing in an 80% chance of the Federal Reserve raising the Fed Funds rate by a full 1%. However, by Friday, expectations dropped to 31%.
"Comments from Fed officials and the fall in inflation expectations in the University of Michigan survey ensure only a 75-basis point hike on July 27," said Button. "That leaves room for a relief rally for gold."
While gold prices are ending the week, holding support at $1,700 an ounce, many analysts are watching to see if prices can hold critical support around $1,675, representing a consolidation zone from 2020.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said he is neutral on gold.
"This is more of a technical opinion because gold is getting oversold on the RSI and due for a bounce, but a retest of $1660-$1675 support can't be ruled out at this point," he said.
Marc Chandler, managing director at Bannockburn Global Forex, said he is also watching to see if gold prices will hold major support levels. He added that gold is seeing its fifth week of losses, the longest losing streak in several years.
"Gold still looks ugly after slipping below $1700 briefly. Momentum indicators would like to see a bounce.