Gold bulls are in the driver's seat; market sentiment looking for prices to hold around $2,000
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(Kitco News) - Sentiment shows that gold bulls are in total control of the marketplace as the global banking crisis grows and the Federal Reserve will be unable to raise interest rates further, according to the latest Kitco News Gold Survey.
Both Wall Street analysts and retail investors are significantly bullish on gold as prices look to end the week flirting with $2,000 an ounce. April gold futures last traded at $1,992 an ounce, up nearly 1% from last week's settlement price.
While most analysts expect to see higher prices in the near term, some are also warning investors to use caution at these levels.
Sean Lusk, co-director of commercial hedging at Walsh Trading, said that he is bullish in the near term but also noted that $2,008 represents a 10% gain for the year, which could attract some profit-taking.
"Gold is toppy at these levels," he said. "But you also have to look at why we are up here. We have a banking contagion that continues to grow and we don't know when it will end. There is not a lot of confidence in equity markets in this environment and people are looking for places to put their money. There are solid reasons why gold could push past the 10% level."
Lusk added that even if prices fell, he expects dips to be bought.
Lukman Otunuga, manager of market analysis at FXTM, highlighted similar sentiment, saying that gold bulls are currently "in the driving seat and may switch into a higher gear once the $2000 resistance is conquered."
However, he also noted that the $2,000 level has proved to be a difficult resistance point.
"This could see the precious metal dip towards $1955 and $1935 before bulls re-enter the scene. Should $2000 give way, this could open the doors to the March 2022 peak at $2070," he said.
This week, 20 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, 13 analysts, or 65%, were bullish on gold in the near term. At the same time, five analysts, or 25%, were bearish for next week, and two analysts, or 10%, saw prices trading sideways.
Meanwhile, 896 votes were cast in online polls. Of these, 639 respondents, or 71%, looked for gold to rise next week. Another 152, or 17%, said it would be lower, while 105 voters, or 12%, were neutral in the near term.
Sentiment in the gold market among retail investors is at its highest level in more than a year. At the same time, participation in this week's vote reached its highest level since the start of the year, indicating a growing interest in the market.
The survey also shows that retail investors see gold prices holding at $2,000 an ounce by the end of next week. Digging deeper into the results, 18% of respondents see gold prices falling below $1,950 an ounce; less than 10% see prices testing support at $1,900.
Adrian Day, president of Adrian Day Asset Management, said that he is bullish on gold as he expects the Federal Reserve's 25 basis point hike on Wednesday will prove to be the last. He added that it will be impossible for the central bank to continue to raise interest rates in the current environment.
"The three US bank failures, plus Credit Suisse, has demonstrated clearly that one can't raise interest rates from zero in such an aggressive manner without something breaking. It would be fantasy to assume that these four banks are the only financial institutions on the brink. The response of the Fed and Swiss National Bank clearly shows that, when push comes to shove, central banks are going to do what central banks always do, that is, throw money at the problem. Thus, the Fed is preparing to pause before inflation has been defeated and as the economy slides into recession amid a fragile financial system. This is exceptionally bullish for gold," he said.
However, not all analysts are bullish on gold. Some analysts have said that any easing of the banking crisis could create a strong selloff in gold.
|Gold bulls are in the driver's seat; market sentiment looking for prices to hold around $2,000|
Marc Chandler, managing director at Bannockburn Global Forex, said the gold market faces some strong technical hurdles.
"Gold needs to rise through the March 20 high near $2010 to sustain the momentum. I am cautious. The Slow Stochastic is flagging, and I suspect the market cannot go much beyond a 100 bp cut this year. Next week's PCE deflator report is expected to show a flat core rate and a small downtick in the headline rate, leaving both at elevated levels," he said.
Darin Newsom, senior market analyst at Barchart.com, said he also sees slowing momentum in the gold market. He noted that he has been bearish on gold for a couple of weeks now.
"I'm either stubborn or stupid, and have been called both an equal number of times over the years. I still see the June contract as having topped out, this time at Monday's high of $2,031.70," he said. "In other news, the US dollar index is working on rolling into a short-term uptrend on its daily chart while the Fed Fund futures forward curve continues to indicate a rate decrease in June. Fun times ahead."