Wall Street analysts cautiously optimistic on gold, while retail investors remain firmly bullish
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(Kitco News) - Gold held onto its recent gains this week, supported by the ongoing conflict in the Middle East, while high bond yields continue to deliver headwinds for the precious metal. The yellow metal also went on another run heading into the weekend, with spot gold once again trading above $2,000 per ounce as traders look to get into long positions in case the geopolitical situation deteriorates while markets are closed.
The latest Kitco News Weekly Gold Survey sees retail investors still bullish on the precious metal for the week ending Nov. 3 despite the recent price runup, while a majority of market analysts are also bullish but with a significant minority expecting either pullback or consolidation next week.
"I'm going to go neutral for the survey this week," said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. "The reason is because I think that gold could actually have a big move; I'm just not sure which direction."
Cieszynski said he expects another hawkish hold at the Fed meeting next week. "I don't think they're in a position to start saying they're done raising interest rates," he said. "I think they'll hold and leave the door open to another rate hike in December because they forecast one more. I think today's inflation number was benign enough that they don't need to go raising rates again, but at the same time, it wasn't dropping off fast enough for them to say we're done."
He added that a hawkish hold would likely mean that the run-up in treasury yields is just about done. "That actually would be bullish for gold, or if nothing else, not bearish," he said. "It could perhaps stop gold from going down too much. On the other hand, it probably wouldn't be enough to really push it up either because Treasury yields are still pretty high."
Cieszynski said that the other side of the equation is the uncertainty about what's going to happen in the Middle East. "The question with that is how long before hostilities break out again," he said. "If you don't have increased hostilities, that's actually bearish for gold. And on the other hand, if there are hostilities, is that bullish for gold? Because it's already probably priced in, considering gold rallied a hundred bucks."
"The Fed side would be flat to up a little bit. The war side would be flat to the downside. And so that leaves me in the middle."
Michael Moor, creator of Moor Analytics, said the technical picture remains bullish, even if markets see a moderate pullback.
"I warned on 10/6 of strength and we left a moderate bullish reversal below—we have traded $164.0 higher from the 18452 10/6 close," he said. "The trade above 19409 (-.5 of a tic per/hour) projects this upward $22 minimum, $130 (+) maximum—we have attained $68.3 so far. Decent trade below 19871-62 (+3 tics per/hour starting at 5:00am) will project this downward $15 minimum, $57 (+) maximum; but if we break below here decently and back above decently, resume bullishness and look for more of the macro projection higher."
This week, 11 Wall Street analysts participated in the Kitco News Gold Survey. Six experts, or 54%, expected to see higher gold prices next week, while three analysts, or 27%, predicted a price drop, and two others, or 18%, were neutral on gold for the coming week.
Meanwhile, 602 votes were cast in the online polls. Of these, 395 retail investors, or 66%, looked for gold to rise next week. Another 126, or 21%, expected it would be lower, while 81 respondents, or 13%, were neutral about the near-term prospects for the precious metal.
The Federal Reserve’s interest rate decision on Wednesday will be the main economic event next week, with markets 94.2% priced in for another hold by the central bank. It will also be an important week for the U.S. labor market, with the Friday release of October’s nonfarm payrolls report.
Investors will also be paying attention to the monetary policy decisions of the Bank of England and the Bank of Japan, along with U.S. consumer confidence and the ISM manufacturing and services PMIs.
Sean Lusk, co-director of commercial hedging at Walsh Trading, said he’s wondering what will break gold prices decisively out of their recent range. "I guess we have yields holding it back, we have geopolitical tensions [supporting gold], and then we have the Fed kind of in the middle."
Lusk said he believes that at these levels, it’s the Fed that’s really holding gold back. "We got up to $2009 last Friday, then the market went risk-on in the equities for a short period of time," he said. "That hit gold back down to $1960, but we didn't stay there for long. You're probably having some psychological resistance up at $2000 an ounce. So far, there's been a lack of conviction up there."
He added that from a seasonal perspective, the beginning of November would normally be a bit bearish until around mid-December. "But obviously you can throw seasonals right out the window, due to the fact that you have the Middle East about to explode here, or the potential exists that it could," he said. "That's going to keep everybody on guard."
"You’ve got to ask yourself though, do you want to be short or long this market? I think any significant dip you get is going to be covered, and it's going to be bought," Lusk said. "Is a ground incursion ahead? Do other countries jump into the fray here? We just don't know what's going to happen overseas. I don't think anybody does, until that reveals itself."
Lusk said that traders might be afraid to be on either side of the precious metals market going into the weekend when the potential for escalation remains so strong.
"It's possible that people go flat; they'll just size everything up and then see what the weekend brings us, and what’s the next break," he said. "You’ve got the FOMC Tuesday and Wednesday. It is close to month-end, so you maybe get some month-end profit-taking; that could be a part of it as well."
"Gold pulled back and approached the target I suggested last week near $1950," he said. "It rebounded to set a new high for the week on Thursday near $1993.50, stopping short of the previous week’s high closer to $1997.20. I do not have a strong opinion next week. On one hand, I look for a softer US jobs report and maybe lower US yields and possibly a softer dollar, which would be positive for gold. On the other hand, the momentum indicators are stretched and unless the war in the Middle East broadens, some of the late longs may be cut.
Chandler said that gold’s inability to make a new high during the week’s price action also points to a stretched market. "The $1950 area may be the first level of support and then closer to $1930," he said.
"Down, but marginally," said Adrian Day, President of Adrian Day Asset Management. "Gold is in a bit of a holding pattern, unlikely at this point to move up further but unlikely to fall sharply. The Mideast situation, as well as the global bond market turmoil, is keeping a bid under gold."
James Stanley, senior market strategist at Forex.com, also expects gold prices to go down next week. "This week has so far been a doji on the weekly chart, which suggests indecision and price has held a lower-high," he said. "I think this is spot gold prices stalling underneath the $2k level, and I think that test could even happen next week as sellers haven’t exactly taken control here. But I also think there are a lot of longs that have bought in October that might want to take profits at some point soon. It’s one of the downsides when working with a breakout as strong as what we have seen."
And Kitco Senior Analyst Jim Wyckoff believes gold prices are capable of continuing their upward trajectory next week. "Steady higher as charts remain bullish and safe-haven demand still evident," Wyckoff said.
Spot gold is currently up 1.27% on the week, with nearly all of those gains coming on Friday afternoon. The precious metal last traded at $2,006.48 an ounce at the time of writing, and remains near session highs after breaking above $2,000 shortly after 2 pm EDT.