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(Kitco News) - Gold's rally to a two-month higher at the start of the week has created some solid bullish sentiment in the marketplace; however, several analysts are also warning investors not to jump in front of the Federal Reserve next week.
The latest Kitco News Weekly Gold Survey shows that retail investors expect gold prices to push back to within striking distance of $2,000 an ounce even as the Federal Reserve is all but guaranteed to raise interest rates another 25 basis points next week. Meanwhile, market analysts, while bullish, also appear to be more cautious.
Sean Lusk, co-director of commercial hedging at Walsh Trading, said he remains bullish on gold as the Federal Reserve cannot control inflation pressures while supply issues dominate broad commodity markets. However, he added that it doesn't pay to fight the Fed in the short term.
"Yes, gold prices can drop $50 next week if the Federal Reserve maintains a hawkish bias after the rate hike," he said. "But there is little they can do about inflation. You have a bunch of commodities that have no place to go but up because of supply issues. There are all sorts of scarcity in a broad range of commodities. Because of this, I think gold should continue to be bought on dips."
James Stanley, market strategist at StoneX, said that he sees gold prices rallying next week into the Fed meeting and then all bets are off.
He added gold's impressive ability to hold above $1,950 could lead to a retest of $2,000 an ounce ahead of the Fed.
"Headline CPI has moderated well, but core inflation remains pretty sticky and I don't think they should approach that lightly, as the risk of missing the mark could be immense. So, I think there's a possibility of reversal around mid-week after the FOMC rate decision," he said.
This week, 19 Wall Street analysts participated in the Kitco News Gold Survey. In a tied vote, both bullish and neutral positions garnered eight votes each, or 42%. At the same time, three analysts, or 16%, were bearish on gold for next week.
Meanwhile, 369 votes were cast in online polls. Of these, 221 respondents, or 60%, looked for gold to rise next week. Another 95, or 26%, said it would be lower, while 53 voters, or 14%, were neutral in the near term.
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The latest survey shows that retail investors expect gold prices to retest resistance around $1,980 an ounce by the end of next week. The gold market is looking to end the current week in neutral territory, last trading around $1,965.80 an ounce, roughly unchanged from last week.
Looking ahead, Wednesday's monetary policy meeting represents next week's most prominent event risk, with markets nearly fully pricing in a rate hike. Some analysts have said the rate hike and a hawkish tone will support the U.S. dollar and weigh on gold.
"This week's dollar strength has made it difficult, at best, for gold to find any traction. Add to that, the FOMC meeting on Wednesday, June 26, will almost certainly announce a 0.25% rate hike. The combined continued dollar strength and a rate hike will not be bullish for gold," said Gary Wagner, founder of TheGoldForecast.com.
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Although the yellow metal faces some fundamental risks next week, some analysts remain bullish on gold as it has managed to hold some critical technical support above $1,950 an ounce.
Michael Moor, the creator of Moor Analytics, said the precious could attract bullish momentum as prices hold above $1,964.40 an ounce.
"We are now either in a bullish correction against the move down from [$2,102.2] or in a new bull structure (this has the characteristics more of a bull structure, though)," he said. "If a correction, I would be aware of key areas of possible exhaustion at 19986-20014, 20192-252 and higher; if not a correction, these may still hold as temporary resistance."
