(Kitco News) - The gold market could be stuck in no-man's land hovering around $1,850 an ounce as sentiment in the marketplace remains relatively subdued, according to the latest Kitco News Weekly Gold Survey.
Although gold prices remain anchored to $1,850 an ounce in the near term, Wall Street analysts say that the precious metal still has plenty of long-term potential as the Federal Reserve will be unable to bring down inflation pressures.
"The Federal Reserve has lost control of inflation that is no longer a question," said Phillip Streible, Chief Market Strategist at Blue Line Futures. "The only thing they can do is destroy demand, and how far are they willing to go to do that?" said Streible.
Some analysts have said that gold's late morning rally Friday is a sign that investors are starting to doubt the U.S. central bank's ability to rein in inflation. The rally came after the U.S. Labor Department said its Consumer Price Index rose 8.6% for the year in May. Consumer prices have hit a 40-year high, driven by rising food and energy prices.
"Finally, gold is responding to higher inflation. It's no longer afraid of the 'Big Bad Fed.' This is potentially a game-changer for gold," said Adrian Day, President of Adria Day Asset Management.
This week 15 Wall Street analysts participated in Kitco News' gold survey. Among the participants, there was a tie between bullish and neutral analysts, with each side garnering six votes, or 40%. At the same time, three analysts, or 20%, were bearish on gold in the near term.
Meanwhile, 598 votes were cast in online Main Street polls. Of these, 274 respondents, or 46%, looked for gold to rise next week. Another 167, or 28%, said lower, while 157 voters, or 26%, were neutral in the near term.
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Sentiment among retail investors have dropped sharply. Last week 70% of online participants were bullish on gold.
Although analysts, in general, continue to see long-term potential for gold in an inflationary environment, the market still faces rising interest rates.
Some analysts have said that next week's Federal Reserve Monetary policy decision could create more short-term selling pressure for gold. The U.S. central bank is on track to raise interest rates by 50 basis points.
"Gold was volatile around the U.S. inflation report, but ultimately, the direction is lower. The Fed is losing credibility on inflation and the likelihood they will have to hike the U.S. into recession is growing. We may only be days away from an inversion in the U.S. bond curve," said Adam Button, chief currency strategist at Forexlive.com.
However, some analysts also noted that the Federal Reserve has already reached peak hawkishness, which could cause the U.S. dollar to lose momentum, easing a significant headwind for gold.
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"Currency market action has mainly been driven the last few days around a strengthening U.S. dollar ahead of next week's Fed meeting and it's possible that we could see a 'buy on rumor sell on news' type of correction afterward,' said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. "Except for the rising U.S. Dollar, the picture for gold has otherwise been encouraging. Inflation remains high and markets remain volatile, playing into gold's role as a store of value, a defensive haven and a hedge against inflation."
Among neutral analysts, gold remains in a tug of war between the Federal Reserve and inflation.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that he remains neutral on gold until there is a clean break above $1,875 an ounce.
Marc Chandler, Managing Director Bannockburn Global Forex, said he is also watching $1,875 an ounce, which appears to be strong resistance.
"The macro picture —with the Fed and BOE set to hike next week and the hawkish spin from the ECB —might be expected to weigh on gold, but the inflation story may keep the gold bears at bay," he said.
