Sentiment indicates gold prices are just waiting for the green light to take off
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(Kitco News) - Once again, the gold's price action is stuck in neutral, waiting for a catalyst to ignite a big move, which, according to many Wall Street analysts and retail investors, is expected to be higher.
The latest Kitco News Weekly Gold Survey shows that retail investors remain bullish on gold, looking for prices to retest resistance just below $2,050 an ounce. At the same time, Wall Street analysts are evenly split, with many saying traders must distinguish between short-term volatility and the broader trend.
Ole Hansen, head of commodity strategy at Saxo Bank, said he is "patiently bullish" on gold in the near term as the market continues to see solid fundamental support. However, he added that he is also respectful of the flows in the market.
Hansen said that speculative positioning-driven volatility can push gold prices lower next week as investors react to short-covering in the U.S. dollar. He added that gold prices remain in a solid uptrend as long as gold holds support above $1,950 an ounce.
"I don't think a correction to $2,000 or below is a cause for concern," he said. "I recognize that any selloff would likely be position-driven rather than any fundamental change in the outlook."
Sean Lusk, co-director of commercial hedging at Walsh Trading, said that he is bearish on gold in the near term, adding that a correction would be healthy and not surprising given the gains made in the last six months.
Lusk said that he is also watching the $1,950 level, but thinks it is likely dips will be bought before that level is hit. Lusk said he remains long-term bullish on gold as broad-based economic uncertainty is providing solid support for the precious metal.
If traders want to know where gold is going, Lusk said they have only to look at backward month future prices. He pointed out that the gold market is currently in contango, with December futures trading around $2,071 an ounce. June gold futures are currently trading around $2,016.
"The market is telling us that investors are willing to pay a higher price for gold later in the year. The markets expect weak economic conditions to force the Federal Reserve to cut interest rates by the end of the year."
This week, 19 Wall Street analysts participated in the Kitco News Gold Survey. In a tied vote, both bearish and bullish positions garnered eight votes each or 42%. At the same time, three analysts, or 16%, were neutral on gold for next week.
Meanwhile, 665 votes were cast in online polls. Of these, 382 respondents, or 57%, looked for gold to rise next week. Another 162, or 24%, said it would be lower, while 121 voters, or 18%, were neutral in the near term
The survey also shows that, on average, retail investors see gold prices ending next week around $2.046 an ounce next week. June gold futures are down less than 0.5% from last week.
While gold continues to benefit from safe-haven interest as recession fears continue to grow, some analysts noted that the primary driver remains the Federal Reserve's monetary policy and the impact that it is having on the U.S. dollar.
Analysts have said that gold could continue to struggle as market expectations shift regarding the central bank's monetary policies. Markets continue to price in rate cuts in the second half of this year, even as the Federal Reserve has signaled that it is not prepared to lower rates as inflation remains elevated.
Analysts note if the markets start to push the first rate cut to year-end or 2024, the U.S. dollar could find some traction.
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"The [U.S. dollar] is testing resistance and it's held support for a few months already. I think we'll see a test of higher prices in DXY and that'll produce a pullback for Gold so that prices test below $2,000," said James Stanley, senior market strategist at Forex.com. "I have a pretty big support at $1,981, so I want to see how it reacts there."
Darin Newsom, senior market analyst at Barchart.com, said he hates being neutral in Kitco's weekly vote, but the momentum indicators he is watching are relatively flat.
"It looks like gold might want to stick in this area until we get closer to month-end, then see what happens on the long-term monthly chart for the cash index," he said.
Adrian Day, president of Adrian Day Asset Management, said that he is neutral on gold in the near term, but he expects it's only a matter of time before prices start to move higher
"It is clear that the U.S. economy is heading into a recession, and also that there are still troubled companies in the financial sector. The latter, if not the former, will cause the Fed to pause before inflation is consistently under its 2% target, a very bullish scenario for gold," he said. "I suspect we shall see another week or two of this back and forth before a breakout."