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(Kitco News) - Gold's drop below $2,000 an ounce ahead of the weekend has damaged some near-term bullish sentiment; however, with so much uncertainty swirling around financial markets, few analysts and retail investors are expecting to see a significant selloff in the near term.
Better-than-expected U.S. economic data and the threat that inflation is becoming embedded in the broader economy have pushed gold prices to end the week near a two-week low. While prices have room to move lower in the near term, the broader landscape has not changed, according to many Wall Street analysts.
Bullish sentiment is also shifting among retail investors even as they expect prices to continue to trade around $2,000 an ounce next week.
"Some investors have probably been caught on the wrong side and they could face some margin calls with a weekly close below $2,000; we could see some further selling pressure," said Sean Lusk, co-director of commercial hedging at Walsh Trading "Some damage has been done as $2000 to $2,050 has been a tough level to defend. But you can't ignore how much support there has been in the gold market. Dips will continue to be bought."
Lusk said that he could see gold prices falling as low as $1,930 an ounce in the near term; however, he added that he expects investors to see lower gold prices as a strategic opportunity to protect themselves from the ongoing inflation threat and a potential recession and a deeper banking crisis.
With downside pressures growing, many analysts have moved to the sidelines, waiting to see how much momentum this potential correction has.
This week, 23 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, six analysts, or 26%, were bullish on gold in the near term. At the same time, eight analysts, or 35%, were bearish for next week, and nine analysts, or 49%, saw prices trading sideways.
Meanwhile, 618 votes were cast in online polls. Of these, 329 respondents, or 53%, looked for gold to rise next week. Another 166, or 27%, said it would be lower, while 123 voters, or 20%, were neutral in the near term.
Wall Street
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Main Street
Although retail investors are still bullish on gold in the near-term, sentiment has dropped sharply. Last week 68% of retail investors were bullish on gold.
Looking at prices, Main Street sees gold prices reclaiming the $2,000 with an average price target of $2,015 an ounce by this time next week. Looking beyond the headline number, only 18% of online respondents see gold prices falling below $1,950 in the near term.
For many analysts, gold's 1.4% drop this week is not surprising as market expectations surrounding the Federal Reserve's monetary policy have turned hawkish. The CME FedWatch Tool shows a 25-basis point hike next month is firmly priced in; At the same time, due to renewed inflation fears, markets have priced potential rate hikes further out, closer to year-end.
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Adrian Day, president of Adrian Day Asset Management, said he is bearish on gold in the near term because of shifting interest rate expectations.
"Gold ran up too fast in March on the false premise of an imminent Federal Reserve pivot. Now it will correct as that perception changes," he said.
Some analysts have noted that shifting interest rate expectations are driving bond yields and the U.S. dollar, creating two major headwinds for gold.
Marc Chandler, managing director at Bannockburn Global Forex, said he is looking for lower gold prices next week; however, he added that it would take a drop below $1,950 to be a meaningful selloff.
