Is the gold market oversold? Main Street investors say no
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Editor's Note: Prices in the article were updated to reflect the late-day rally in gold as prices hit their highest level in three years.
(Kitco News) - Gold prices could have room to move higher next week, with bullish sentiment among retail investors surging through the marketplace as they look to protect themselves from the biggest banking crisis since 2008. However, Wall Street analysts are taking a more conservative stance in the immediate near term.
The latest Kitco News gold survey shows that sentiment among Main Street investors has pushed to a three-month high as gold sees its best weekly gains since March 2020. However, sentiment among Wall Street analysts is slightly more mixed, with bullish sentiment holding only a slight advantage and a strong contingent sitting on the sidelines.
Many analysts are bullish on gold this year as growing financial market turmoil will force the Federal Reserve to end its aggressive year-long tightening cycle as early as next week. Although analysts have said that gold is on the cusp of hitting a new all-time high this year, the market looks overbought.
"The conditions for a powerful gold bull market are here as the Federal Reserve abandons QT in the face of bank failures. Many said that the Fed would remain tight until "something breaks"; and now something has broken," said Adrian Day, president of Adrian Day Asset Management. "Nonetheless, after such a strong move, gold is at the ceiling reached in January and last April, so in the immediate term, we may see some back and forth before it breaks through."
This week, 22 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, nine analysts, or 41%, were bullish on gold in the near term. At the same time, five analysts, or 23%, were bearish for next week and eight analysts, or 36%, saw prices trading sideways.
Meanwhile, 707 votes were cast in an online Main Street poll. Of these, 445 respondents, or 63%, looked for gold to rise next week. Another 169, or 24%, said it would be lower, while 93 voters, or 13%, were neutral in the near term.
Main Street"s bullish outlook comes as gold prices rallied more than 5% this week, seeing the best weekly performance in three years. as of 2:11 pm EDT, April gold futures last traded at $1,978.60 an ounce.
The Kitco survey showed that, on average, retail investors see gold prices ending next week around $1,922 an ounce. However, digging into the details of the results, less than one-third of respondents see gold prices fall below $1,900 an ounce next week.
Bullish Wall Street analysts see significantly more potential in gold next week, with some eyeing $2,000 an ounce.
Kevin Grady, president of Phoenix Futures and Options, said that gold looks good as the Federal Reserve is stuck. Although markets see a 73% chance that the U.S. central bank will raise interest rates by 25 basis points next week, Grady said that it could be a much tighter race than what expectations show.
"I think there is a good chance that the Federal Reserve leaves interest rates unchanged because they don"t want to add more stress to what has become a global banking crisis. Another quarter-point hike could push another bank over the edge," he said. "If this happens, you will see gold prices much higher."
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Along with the Fed, analysts note that gold will be sensitive to improving market sentiment if government regulators can contain the crisis.
"I think gold could have a big move but am not clear on the direction," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "Gold benefitted from a weakening of the U.S. dollar and a flow of capital into defensive havens due to stress in the global banking system. This trend could easily continue in the coming week. On the other hand… investor confidence could improve, which could shift the current tailwind back to a headwind. Mainly, it depends on what the Fed does on Wednesday. A dovish Fed cold be bullish for gold, a neutral to hawkish Fed could potentially be bearish for gold."