Gold market optimism wanes as analysts and retail investors see limited upside
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The latest Kitco News Weekly Gold Survey shows that last week’s optimism has fled the precious metals market, as less than half of retail investors expect gold prices to post gains next week, while most market analysts returned to their bearish bias.
Sean Lusk, Co-Director of Commercial Hedging at Walsh Trading, said gold’s performance is still all about the U.S. dollar, and he doesn’t see the greenback weakening anytime soon.
"Even though you've had some uneasiness in equities, the dollar’s really stolen the thunder here, with the DXY back up to 105," he said. "Longer term, I'm bullish, but near term, this looks like crap, technically. The charts are telling us that near-term rallies are sold, and I suspect that will be the case in the next week. We're going to have more longs come out of the market"
On the other hand, Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, likes what the charts are telling him.
"I am bullish on Gold for the coming week," Cieszynski said. "Technical indicators such as the price holding its 20-day average and oscillators turning upward suggest that Gold may be due for a trading bounce here."
This week, 13 Wall Street analysts participated in the Kitco News Gold Survey. Four experts, or 31%, expected to see higher gold prices next week, while five analysts, or 38%, predicted a drop in price. Another four analysts, or 31%, expected gold to trade sideways during the week ending September 15.
Meanwhile, 474 votes were cast in online polls. Of these, 222 respondents, or 47%, looked for gold to rise next week. Another 169, or 36%, expected it would be lower, while 83 voters, or 17%, were neutral in the near term.
The latest survey shows that retail investors expect gold prices to trade around $1,933 per ounce next week.
The most significant economic data for gold traders in the coming week are U.S. CPI and PPI for August, released on Wednesday and Thursday, respectively. Market participants will also be watching U.S. retail sales for August and the ECB’s rate decision, both of which are slated for release on Thursday morning.
James Stanley, Senior Market Strategist at Forex.com, believes CPI and the ECB "will probably be the deciding factor" in how gold performs in the coming week.
"I’m going into the week with a bullish bias as spot prices have held above support at 1903-1910," he said. "I do think that it’s possible that we see Gold strength around CPI, but I’m more uncertain about the European Central Bank. Lagarde has seemed evasive of late and that puts more of a question mark on whether they’ll actually hike or not. If they do, I think that could be bearish for gold and could possibly wipe out any CPI pop that may have shown."
"In that case, the big question is whether gold can hold 1900 ahead of the Fed’s rate decision the week after," Stanley said.
Marc Chandler, Managing Director of Bannockburn Global Forex, believes gold prices could break either way next week. "I had thought Gold was poised to increase this past week as it was flirting with the $1950 area a week ago," he said. "However, the strong dollar and firm rates pressured the yellow metal back to around $1915.35 (near the 20- and 200-day moving averages)."
Chandler expects U.S. headline CPI to show an increase for the second consecutive month on Wednesday but noted that the market "seems to have rejected the push in the two-year yield above 5.0%" once again.
"A nearby resistance band is likely $1935-40, and overcoming it can spur another run at $1950," he said. "On the other hand, a break of $1915 could see $1900 and possibly a retest of the August lows near $1885."
Adam Button, Chief Currency Analyst at Forexlive.com, thinks bond yields are the key metric for both gold and equites these days, and he sees limited upside for the precious metal until later in the fall.
"Right now, the bond market is in charge of every other market," he said. "It's almost tick for tick, with stocks and everything. Yields go up, everything else goes down. But I think rates have been artificially pushed up early in the month by corporate rate-loss selling, and that will unwind as corporate debt is issued and pulls yields back down, which should translate into higher gold prices."
"I'm not a super bull on gold until about middle November when I think it will be abundantly clear that the Fed's done hiking," Button said.
For his part, Daniel Pavilonis, Senior Commodities Broker at RJO Futures, believes that interest rates remain the key driver for gold prices, and they will continue to restrain gold prices. "And if crude oil moves a little bit higher and forces the Fed's hand, then there's that issue, too," he said. "It's the uncertainty of how long inflation is going to persist, and the type of inflation we're seeing. The longer duration yields are going to start moving higher, indicating that inflation is here for a lot longer than what was originally expected."
"In terms of next week, I think we're going to see more of this range between $1,900 and $2,000 for gold," Pavilonis said. "It can't break below it, and if it does, it's very brief and then it begins to move higher again. I think gold's just stuck in a range, and I think it will be for quite some time."
"Hedge longs as the dollar rallies," cautioned Mark Leibovit, publisher of the VR Metals/Resource Letter. "Bottom line, short-term bearish."
Adrian Day, President of Adrian Day Asset Management, sees gold prices rising next week. "The selloff has been overdone, even accounting for dollar strength," Day said.
And Kitco's Jim Wyckoff sees downside risk for the precious metal next week. "Steady-lower," Wyckoff said. "Downtrend in place on the daily bar chart means the path of least resistance for prices remains sideways to lower."
Gold prices are currently down 1.06% on the week, with spot gold last trading at $1,919.26 an ounce, flat on the day at the time of writing.