Retail investors bullish on gold, but Wall Street analysts shift into neutral
Gold inched steadily higher this week, with prices seeing bumps following economic data releases, but after the strong and sudden moves of the past month or so, the precious metals’ price action was more orderly and less dramatic.
The latest Kitco News Weekly Gold Survey sees retail investors maintaining an overwhelmingly bullish bias going into next week, while the exact same proportion of market analysts have switched to a neutral assessment of the yellow metal’s near-term prospects.
Adrian Day, President of Adrian Day Asset Management, expects gold prices to be little changed during the coming week. “After the recent run, gold is vulnerable to bad news,” he said. “The medium-term fundamentals are very powerful: at some point, the Fed and other central banks will ease tightening before inflation has been conquered and that will be the firing gun for gold. But that’s not yet.”
Daniel Pavilonis, Senior Commodities Broker at RJO Futures, sees a period of prolonged consolidation for gold now that the geopolitical risk bid has subsided.
“We're right smack at the upper band of this trading range that we've been in for several weeks,” said Pavilonis. “Most likely we're not going to see any more rate hikes. We could possibly see some rate cuts in May of next year, but I doubt that's going to happen. I think we're really just going to stay where we're at for a while.”
Pavilonis said that while gold prices continue to react to economic indicators, they aren’t providing the precious metal with a clear direction. “I think that the market is just trading off of a mixed range of inflation data,” he said. “Housing starts, they’re still building houses, there's still demand. Employment reports still look relatively strong. The CPI numbers, the big drop was healthcare, supposedly. I would say next week we're still going to be range bound. I don't see anything that's going to break this thing out to the upside. I would imagine it's going to stay where we've been, trading within this 40, 50, 60-dollar range.”
“Gold is just going to have trouble moving higher if inflation data continues to weaken and we don't lower interest rates,” he said. “I don't know what the driver is going to be if geopolitics isn't there.”
This week, 12 Wall Street analysts participated in the Kitco News Gold Survey. Like last week, three experts, or 25%, expected to see higher gold prices next week, but this week only one expert, representing 8%, predicted a drop in price. The overwhelming majority, or 67%, were neutral on gold for the coming week.
Meanwhile, 595 votes were cast in Kitco’s online polls, and market participants were even more optimistic than they were in last week’s survey. 394 retail investors, or 66%, looked for gold to rise next week. Another 125, or 21%, expected it would be lower, while 76 respondents, or 13%, were neutral on the near-term prospects for the precious metal.
Next week will be a short one for trading and economic data releases, as Thursday’s U.S. Thanksgiving holiday means most of the action will be compressed into the first three days. Highlights include the release of the latest FOMC minutes and October Existing Home Sales on Tuesday, followed by October Durable Goods, University of Michigan Consumer Sentiment for November, and weekly jobless claims on Wednesday.
Everett Millman, Chief Market Analyst at Gainesville Coins, said he believes that the attention of gold investors is moving from the geopolitical sphere to macroeconomics.
“I think that we're seeing a shift in the focus of the gold market away from the war premium that we saw, that certainly drove gold higher in recent weeks,” he said. “I think that's becoming less of a central concern for the gold market, and now the attention is shifting more toward the macroeconomic picture and particularly, what Fed policy is going to be.”
Millman said the consensus now is that the Fed is most likely done hiking rates, and the gold market is really going to be focused on how soon the rate cuts will come. “Lower interest rates are basically the biggest bullish driver out there for gold, outside of a deep recession,” he said. “I think the economic data have been a bit mixed. I see so many takes about how strong the economy actually is, and yes, there's some data showing that. But then there's just as many examples or indicators you can look at on the other side.”
“I think that spells a period of sideways movement or consolidation for gold until we get some clearer pictures on economic conditions.”
Millman also said that under this Federal Reserve Chair, gold traders can’t afford to wait for interest rate cuts to get into their positions, unlike during Feds past.
“This is very different from the Greenspan era, where he basically was trying to cloak what the Fed was going to do so no one could front-run it,” he said. “Now the Fed does directly telegraph these things, and Powell has repeatedly acknowledged that these policy actions act with a lag, and traditionally that lag could be as long as 18 months. So I think it actually makes some sense that markets are going to go off of the signal rather than the action, because we do know that these changes in interest rates, or things like switching from QE to QT, that these types of policy decisions take 12 to 18 months to fully work their way into the economy and actually affect markets.”
“Obviously, if there is that long a lag, then market participants have to go off of the signal and work ahead, because if you're waiting to react to the actual consequence, like that lagged result, then you're going to be so far behind the eight ball,” Millman said. “They know that this 500-basis-point change in interest rates occurred in a very short span of time, but we're still not the full year and a half out, we're getting close. I think that definitely factors into the calculus here.”
Ole Hansen, head of commodity strategy at Saxo Bank, said he doesn’t see any big moves for gold in the near term. “Having been so ‘lucky’ to hit it spot-on last week, I’m now looking for additional consolidation next week, so the call is NEUTRAL.”
Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, is also neutral on gold for the coming week. “My reasoning is that between the usual late month drop-off in economic news and next week’s US Thanksgiving holiday, markets in general are likely to be quieter for the next ten days.”
Darin Newsom, Senior Market Analyst at Barchart.com, is bullish on gold’s prospects next week. “Dec gold’s short-term uptrend firmed this past week, with the contract hitting a high of $1,996.40 early Friday,” he said. “If the contract closes lower Friday, based on the Benjamin Franklin Fish Analogy (Like guests and fish, markets start to stink after three days of moving against the trend), Dec gold could move lower Monday and Tuesday as well.”
“Using Elliott Wave Theory, this would be considered Wave 2 of the 5-wave short-term uptrend pattern,” Newsom said. “Ultimately, the contract would be expected to take out the Wave 1 high.”
Marc Chandler, Managing Director at Bannockburn Global Forex, has a neutral bias for the coming week. “Gold bottomed near $1931 in the spot market on Monday and reached almost $1993.50 today, ahead of the weekend,” he said. “The main drivers appear to be the drop in US rates and the dollar. It is not inflation but the decline in inflation (US and UK reported in recent days) that presses rates lower and knocks a leg from under the dollar.”
“Lighter economic calendars next week and the market is pricing in 100 bp of Fed cuts next year,” Chandler added. “So, I look for some consolidation throughout the capital market and this could see the yellow metal consolidated. I see initial support in the $1970-75 area.”
And Kitco Senior Analyst Jim Wyckoff expects gold prices to make gains next week. “Higher, as charts have turned friendlier, and so has U.S. monetary policy after this week’s tamer inflation reports,” Wyckoff said.
Spot gold is currently flat on the day, but up 2.17% since Monday as market participants prepare for the weekend. The precious metal last traded at $1,980.43 per ounce at the time of writing.
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