Bullish sentiment growing in gold with prices ending the week up 2%
(Kitco News) - Gold's bounce off a two-year low, followed by a nearly 3% rally Friday, is creating some solid bullish momentum among Wall Street analysts; however, some also note that the precious metal still has some work to do to reverse its months-long downward trend.
The latest Kitco News survey shows that sentiment in the marketplace continues to improve, with a majority of market analysts expecting to see higher prices in the near term. Sentiment among retail investors also continues to improve but remains below the 50% threshold.
Bullish sentiment has been building all week after gold prices ended October with their seventh consecutive monthly loss, its longest losing streak in 50 years.
Rising bond yields and the U.S. dollar, holding near its highest level in 20 years, remain critical headwinds for gold; however, some analysts note that growing recession fears are driving safe-haven demand for gold.
Ole Hansen, head of commodity strategy at Saxo Bank, said a recession in the U.S. would force the Federal Reserve to end its tightening cycle before it achieves its goal of 2% inflation. He added that a stagflation environment of low economic growth and high inflation will be bullish for gold.
However, Hansen added that while he expects gold prices to have enough momentum to push higher, moving back to $1,675 would just put the market back in neutral territory.
"We can confidently call the bottom if prices can get back above $1,735. That will put gold back in a bullish uptrend," he said.
Christopher Vecchio, senior market analyst at DailyFX.com, said that he is neutral on gold as he would also like to see an initial push above $1,680, leading to $1,730.
"We are close to saying we have a workable bottom in gold, but more work needs to be done," he said. "We have short-term levels of resistance to work with that suggests we are building a bottom."
This week, a total of 20 market professionals took part in Kitco News' Wall Street survey. Ten analysts, or 50%, said they were bullish on gold next week. Two analysts, or 10%, said they were bearish. Eight analysts, or 40%, said they were neutral on the precious metal.
On the retail side, 520 respondents took part in online polls. A total of 240 voters, or 46%, called for gold to rise. Another 169, or 33%, predicted gold would fall. While the remaining 111 voters, or 21%, called for a sideways market.
Friday's rally has helped gold prices end the week in positive territory. December gold futures last traded at $1,677 an ounce, up 2% from last week.
Adding to the recession fears, cracks are starting to appear in the labor market. Friday, the Bureau of Labor Statistics said 261,000 jobs were created in October, beating expectations. However, some analysts have said that when one looks past the headline number, there is a growing weakness.
"Looking at the longer term, there is a clear slowdown in new jobs. In the "core" working age group of 25 to 54-year-olds, there was a loss of jobs, a very significant factor. The Fed is not going to pause because of this report, but it is evidence that the employment picture is deteriorating under the surface," said Adrian Day, president of Adrian Day Asset Management.
Along with growing bullish fundamentals, many analysts note that gold's technical outlook has turned positive.
"Gold had been building a technical base above $1,620 support and appears to be starting to launch up off of there," said Colin Cieszynski, chief market strategist at SIA Wealth Management.
However, not all analysts are convinced that gold's rally is sustainable. Phillip Streible, chief market strategist at Blue Line Futures, said that many investors have been burned by these short spikes higher.
He added that bond yields remain well above 4%, which will remain a headwind for gold. Ultimately, he said that the Fed continues to raise interest rates and in this environment, rallies in gold will be sold.
Marc Chandler, managing director at Bannockburn Global Forex, said that he expects gold could top out at $1,677 an ounce.
"I would want to reduce exposure ahead of Thursday's CPI, which is likely to prove sticky," he said.