The bulls are back as gold prices look to end the week around $1,850, even as bond yields rise
(Kitco News) - Gold's ability to hold its ground above $1,800 and rally to resistance at $1,850 an ounce is creating some healthy optimism in the marketplace as both retail investors and Wall Street analysts expect higher prices next week.
Ole Hansen, head of commodity strategy at Saxo Bank, said that gold is not only seeing new momentum, but it comes as U.S. bond yields continue to increase. This week the yield on U.S. 10-year notes pushed above 4%, hitting its highest level since November. At the same time, U.S. two-year yields are inching close to 5%.
However, Hansen noted that breakeven rates also continue to rise, indicating that inflation remains a significant concern.
"Gold can still do well even if nominal bond yields push higher if investors think that inflation will be adjusted higher," he said.
Hansen noted that gold's bullish move had pushed prices back above their 21-day moving average. While Hansen said prices can increase, he still sees gold stuck in a broader consolidation pattern.
"Gold prices really need to make it above $1,885 or even $1,900 before we see new bullish interest from investors," he said. "The market has stopped hating gold, but it won't break out until investors start loving it."
This week, 19 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, 13 analysts, or 68%, were bullish on gold in the near term. At the same time, one analyst, or 5%, was bearish for next week and five analysts, or 26%, saw prices trading sideways.
Meanwhile, 495 votes were cast in online polls. Of these, 254 respondents, or 51%, looked for gold to rise next week. Another 145, or 29%, said it would be lower, while 96 voters, or 19%, were neutral in the near term.
Sentiment on Main Street has shifted significantly from last week as retail investors were leaning towards the bearish end of the market, looking for prices to fall to $1,800 an ounce.
In Kitco News's updated feature, retail investors see gold prices holding steady, with prices looking to end next week around $1,841 an ounce.
The shift in sentiment comes as the gold market ends a five-week losing streak. Prices are up nearly 2% from last Friday, trading around $1,850 an ounce.
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Michael Moor, founder of MoorAnalytics.com, said that this past week gold prices hit an exhaustion level on the downside at $1,810 an ounce. He added that if prices can stay above $1,838, gold can see a continued bullish reversal pattern for days.
Darin Newsom, senior technical analyst at Barchart.com, also sees solid technical momentum for gold next week. He added that he also sees potential weakness in the U.S. dollar, providing a tailwind for the precious metal.
"The hiccup with gold could be if it runs out of initial buying interest and slips into a Wave 2 selloff (of a 5-wave Elliott Wave uptrend). This is a possibility, though the initial upside target would remain at $1,874.30," he said.
Marc Chandler, managing director at Bannockburn Global Forex, saw gold's correction in February as a buying opportunity. He added that he sees room for prices to move higher in the near term.
"The strategy I suggested last week was to buy the pullback toward $1800. Gold finished the week testing the $1850 area. My next target is near $1865 and then $1882. The momentum indicators are turning higher, and I expected the jobs data to confirm that January was a bit of a fluke," he said.
Nicholas Frappell, global head of institutional markets at ABC Refinery, said that he is relatively neutral on gold next week as hawkish central bank comments could cap any short-term rally.
"I think much of the recent short covering is done," he said.
Frappell added that investors will be reluctant to make any heavy bets next week ahead of February's nonfarm payrolls data. Despite the growing threat of a recession, the U.S. labor market has shown resilient strength.