(Kitco News) - Although gold prices may see some selling pressure at the start of the shorter trading week, analysts explain that improving market sentiment and continued uncertainty in global markets will bode well for prices in the near-term.
April Comex gold futures ended their fourth consecutive week in positive territory, settling Friday’s session at $1,239.40 an ounce, up almost 5.7%. This was gold’s biggest percentage gain since late October 2011.
The silver market also saw impressive gains during the week as March Comex silver futures settled Friday’s session at $15.790 an ounce, up 5.1%. Not only is this silver’s fourth straight positive week, but also its second consecutive week with more than 5% gains.
Analysts noted that strong positive investor sentiment should continue to push gold higher in the near-term. Once again, Kitco saw record participation in its gold survey, with 1,953 votes cast. Of the respondents, 1,678 people, or 86% said they are bullish on gold next week. This is the second week the survey has hit that level and is the fourth straight week it has been above 80%. At the same time, 177 people, or 9%, said they are bearish on gold next week and 98 people, or 5%, are neutral.
Although the spread is much narrower, a majority of market analysts also expect gold prices to move higher in the near-term. Out of 34 market experts contacted, 17 responded, of which nine, or 53%, said they expect to see higher prices next week. At the same time seven professionals, or 41%, said they see lower prices and one analyst was neutral on the market. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Although the market could see a technical correction at the start of the week, analysts noted that anybody who missed the latest rally will be anxious to get in on any pullback.
“Nobody saw this rally coming and a lot of funds missed it. They are desperate to get in and will be buying on dips,” said Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report.
“Gold is likely overbought now but that is normal for the start of a bull market. We have turned the corner and the price action confirms that we are at the start of a new bull market,” he added.
Analysts also cited gold’s run to its one-year high at $1,263.90 an ounce, breaking significant resistance points, which is a strong bullish indicator. Bill Baruch, senior commodity broker at iiTrader, said the weekly close above $1,230 an ounce is an indication that that market is holding on to most of its momentum.
He added though that prices could fall to $1,180 an ounce and still maintain its renewed uptrend. However, he suspects prices to hold $1,200 as most investors will be buying into that area.
George Milling Stanley, head of gold investments at State Street Global Advisors, agreed that gold still has potential to move higher and that Thursday’s impressive gains were not “just a one-day phenomenon.”
“I don’t think gold is overvalued at all,” he said. “The conditions that led to the rally aren’t going away and continue to demonstrate that there are still reasons to own gold.”
Bart Melek, head of commodity strategy at TD Securities said Federal Reserve Chair Janet Yellen’s testimony before Congress mid-week was a significant game changer for gold and financial markets in general. At first, the market was only pricing in no rate hikes for the year but Yellen has now opened the door to the possibility of negative rates.
“Just by saying that they are looking into negative interest rates is a major shift in the market,” he said. “If we see ambiguity around Fed rate hikes and more negative economic data, markets are going to speculate more about the Fed introducing negative rates.”
However, some analysts not only think the gold market is overdone, but also see investors greatly exaggerating the chance of a recession in the U.S..
Nick Exarhos, senior economist at CIBC World Markets, said that January’s better than expected retail sales numbers, released Friday, was an indication that U.S. consumers will be a significant driver of economic growth.
“The U.S. is not going to fall into a recession when consumers are still spending and hundreds of thousands of jobs are being created every month,” he said. “The recent recession fears are unfounded.”
Although it is unlikely the U.S. central bank will raise interest rates in March, Exarhos said that the Fed is still on pace for at least two hikes later in the year. He added that positive data next week could cause markets to refocus on rising rates, which will be dollar positive and gold negative.
Although it is a shortened week with markets closed Monday for Presidents Day, the U.S. economic calendar will be busy with the release of regional manufacturing reports, housing sector data, and the release of the Consumer Price Index for January.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
