Sentiment in gold remains bullish, but prices to stay below $2,000 as the Fed looks to leave interest rates unchanged next week
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(Kitco News) - Sentiment in the gold market remains bullish as momentum supports higher prices but analysts are warning investors that they should not expect prices to break above $2,000 an ounce next week as the Federal Reserve looks to maintain its hawkish monetary policy stance even as it leaves rates unchanged.
The latest Kitco News Weekly Gold Survey shows that Main Street retail investors remain bullish on gold in the near term; however, Wall Street analysts appear to be cautiously optimistic ahead of next week's critical inflation data and the U.S. central bank's monetary policy decision.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that from a strictly technical perspective, he is bullish on gold in the near term. Cieszynski said momentum indicators are starting to turn slightly bullish, which gives prices room to move slightly higher.
However, he added that he doesn't expect gold prices to break above $2,000 an ounce.
"I think the Federal Reserve will signal a pause in interest rates and that could drive gold prices up another $20 an ounce," he said. "But a pause is not an end to the tightening cycle. What gold needs to break above $2,000 is a clear signal that the Fed's tightening cycle is done."
Phillip Streible, chief market strategist at Blue Line Futures, said he is neutral on precious metals in the near term ahead of the Federal Reserve and recommends buying weekly put options in gold and silver as insurance against hawkish comments from the U.S. central bank.
Streible added that with so much market uncertainty, investors should wait for a solid breakout in gold before jumping in. He said a break above $2,063 an ounce would signal a new bullish uptrend for the precious metal.
This week, 21 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, nine analysts, or 43%, were bullish on gold in the near term. At the same time, two analysts, or 10%, were bearish for next week, and ten analysts, or 48%, saw prices trading sideways.
Meanwhile, 692 votes were cast in online polls. Of these, 435 respondents, or 63%, looked for gold to rise next week. Another 159, or 23%, said it would be lower, while 98 voters, or 14%, were neutral in the near term.
Although there is still solid bullish sentiment in the marketplace, retail investors are also not expecting to see prices break above $2,000 an ounce. Retail investors see gold prices ending next week around $1,992 an ounce.
Last week, analysts and retail investors were bullish on gold as prices look to end the week with a slight gain, last trading at $1,976 an ounce, up 0.32% from last Friday.
The biggest near-term risk for gold remains the Federal Reserve's monetary policy decision. Markets currently expect the U.S. central bank to leave rates unchanged; however, hawkish moves from the Bank of Canada and the Reserve Bank of Australia have created doubt in the marketplace.
Adrian Day, president of Adrian Day Asset Management, said that while markets aren't entirely ruling out a rate hike next week, a selloff in gold could be short-lived.
"A Fed rate hike is already to a large extent in the price, so any decline on a hike will be shallow and short-lived. Once this hike, and the US Treasury's large bill issuing splurge, following the lifting of the debt ceiling, are over, gold will resume its upward move," he said. "There are increasing reasons to be positive, including China's recent easing moves."
However, not all analysts see gold prices going higher next week. Christopher Vecchio, head of futures and forex at Tastylive.com, was one of the two bearish voices this week.
Vecchio said that he is bearish on gold as the Federal Reserve is not done raising interest rates as it still does not have inflation under control.
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He added that if the central bank thinks it has the banking crisis contained, then it could use next week's meeting to signal that more rate hikes are needed. Vecchio noted that before the March banking crisis, markets were starting to price in a terminal rate of around 6%.
Vecchio said that investors will need to pay close attention to the central bank's updated economic projections, also known as the dot plots. While the Federal Reserve is unlikely to push their interest rate forecast to 6%, Vecchio said it could show that they are not looking to cut rates anytime this year.
"A Fed that is not looking to cut this year will be bullish for the U.S. dollar and that will be negative for gold," he said. "I would look at selling rallies to $2,000 an ounce and increasing that position with a break below $1,950."