(Kitco News) - Wall Street and Main Street both look for gold prices to climb next week, with the Federal Open Market Committee widely expected to cut U.S. interest rates, according to the weekly Kitco News gold survey.
Wall Street respondents cited a dovish Fed, technical-chart momentum in gold and the ability of the market to attract buying interest from fund managers on any price dips. However, many Wall Street respondents either look for either lower prices – saying a rate cut is already factored into the market, thus profit-taking may occur when the actual news occurs – or are neutral heading into what could be a volatile week for prices.
One key will be whether policymakers cut rates by 25 or 50 basis points, with the larger reduction more likely to result in price gains, observers said.
Sixteen market professionals took part in the Wall Street survey. A total of eight voters, or 50%, called for gold to be higher. There were three votes, or 19%, for lower, while five respondents, or 31%, look for the metal to be sideways or were neutral.
Meanwhile, 953 respondents took part in an online Main Street poll. A total of 580 voters, or 61%, called for gold to rise. Another 223, or 23%, predicted gold would fall. The remaining 150 voters, or 16%, saw a sideways market.
Wall Street
50%
19%VS
Main Street
61%23%In the last survey, Main Street and Wall Street were both bullish on prices for the week now winding down. Just before 11 a.m. EDT, Comex August gold futures were trading $6.60 lower for the week so far at $1,420.10 an ounce.
Wall Street and Main Street both have a 15-13 winning record for the year to date, meaning respondents have been right 54% of the time.
“The lustrous metal finds broad support for its rally upwards with U.S.-China trade tensions unresolved, the possibility of a hard Brexit on the horizon, easing Central Bank policies and slowdown in global growth,” said Richard Baker, editor of the Eureka Miner’s Report.
He commented that second-quarter U.S. economic growth, reported Friday at 2.1%, is below the first quarter and will likely not deter the Federal Reserve policymakers from a signaled rate cut.
“The ECB [European Central Bank] didn't cut rates this week but President Mario Draghi announced a dovish stance going forward,” Baker said. “This keeps the opportunity costs for holding gold low; the 10-year real rate is 0.28% against a background of negative rates abroad. There has also been a modestly bullish uptick in inflation expectations since the low of mid-June (up 19 bps to date).”
Daniel Pavilonis, senior commodities broker with RJO Futures, looks for a flight to quality into gold. Pavilonis and Sean Lusk, co-director of commercial hedging with Walsh Trading, both commented that buying interest seems to emerge on any price pullbacks lately.
“I think the market moves higher into the Fed,” Lusk said, but adding that some consolidation may well occur afterward. He also commented that markets continue to worry that the trade war will cut into global economic growth, thereby helping gold.
Phil Flynn, senior market analyst with at Price Futures Group, looks for gold to build on the gains made this summer.
“Even though Mario Draghi seemed to disappoint gold by not acting immediately to cut rates, the path is still accommodative and still bullish for gold,” Flynn said. “The Fed anticipation should help gold prices next week. Gold is still in breakout mode.”
Jim Wyckoff, senior technical analyst with Kitco News, said gold’s technical-chart picture remains bullish.
Meanwhile, Adam Button, managing director of ForexLive, is among those who look for gold prices to move lower next week.
“I expect the Fed to cut 25 bps and offer few clear signals about what’s coming next. The reaction will be similar to the post-ECB disappointment,” he said, referring to the price movement after Thursday’s ECB meeting. “Far too much easing is priced in and as it unwinds, gold will come under pressure.”
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, also looks for a pullback next week, even though he’s friendly to the metal.
“The market is beginning to be a little cautious about next week’s Federal Reserve meeting — or maybe traders are just locking in gains,” Day said.”Expectations are quite high, so there is unlikely to be a surprise on the upside. So we are cautious in the near term, up to and post the meeting. For next week, we’ll say down -- but not by much, and we remain very positive fundamentally.”
Peter Hug, global trading director of Kitco Metals, said he looks for volatility in a week when the Fed announces a decision on interest rates and is expected to provide forward guidance.
“I expect a 25-basis-point cut is in the market, and a cut of this size without a dovish forward-looking statement may create a sell-the-news event,” Hug said. “A cut of 50 [basis] points will create the impulse for a significant rally.”
