Market volatility is boosting gold's safe-haven appeal and near term sentiment improves
The latest Kitco News Gold Survey shows that both Wall Street analysts and Main Street retail investors are bullish on gold in the near term as prices end the week at an important long-term support/resistance level after bouncing off a fresh two-year low.
According to analysts, gold's safe-haven luster has regained some of its shine following significant volatility in global financial markets. Early in the week, the Bank of England was forced to intervene in the global bond market and buy long-dated gilts. The rout in British bonds was triggered after the government announced it would spend nearly £300 billion to support its beleaguered economy.
The deficit spending plan also caused the British pound to fall to a historic low against the U.S. dollar. Analysts note that the Bank of England's market intervention came less than a week after the Bank of Japan was forced to support its currency for the first time since 1998 because of surging momentum in the U.S. dollar.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that while gold is suffering against the U.S. dollar, it is holding near record highs against the Japanese Yen, British pound and euro.
"When there is chaos in markets, gold becomes a very attractive global currency and that should help it hold its own against the U.S. dollar," he said. "We are seeing an attractive tradeable bounce in gold, and we have to wait and see if it turns into anything else."
This week, a total of 16 market professionals took part in Kitco News' Wall Street survey. Ten analysts, or 63%, said they were bullish on gold next week. At the same time, bearish and neutral views for next week were tied at three votes a piece or 19%.
On the retail side,731 respondents took part in online polls. A total of 389 voters, or 53%, called for gold to rise. Another 225, or 31%, predicted gold would fall. The remaining 117 voters, or 16%, called for a sideways market.
The bullish sentiment comes as gold prices end the week with a 1% gain. This is only the second positive weekly close in the last eight weeks.
Darin Newsom, president of Darin Newsom analysis, said that gold's price action has created a technical bullish key reversal. "This would confirm the intermediate-term trend has turned up," he said.
He added that there are also signs that the U.S. dollar in the near term has peaked.
"China has been making noise about selling the U.S. dollar, and the index could be approaching a long-term top on its monthly chart. If so, this could roll money out of cash and into other markets, including gold," he said.
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Not only is gold creating some short-term technical bullish momentum, but Phillip Streible, chief market strategist at Blue Line Futures, said that gold and silver are entering a strong seasonal period.
He added that he recommends buying February gold call options to limit the risks if this new momentum fades.
"Seasonally, gold has rallied for the next three weeks 12 out of the last 13 years," he said.
However, not all analysts are bullish on gold in the near term. Jim Wyckoff, senior technical analyst at Kitco.com, said that the chart still shows gold in a bearish downtrend, which could continue to weigh on sentiment.