(Kitco News) - Caution is once again creeping into the gold market as Wall Street analyst increase their bearish outlook ahead of next week’s Federal Reserve monetary policy decision.
The latest Kitco News Weekly Gold Survey shows that there is no clear consensus among market analysts as some see potential for the Federal Reserve to be less dovish than markets are expecting.
Although the Federal Reserve is expected to cut rates next week, many analysts are not expect a strong dovish signal from the Fed, which could limit support for higher gold prices.
Fawad Razaqzada, technical analyst at City Index said that recent economic data has been relatively positive so it is likely that Federal Reserve Chair Jerome Powell will signal that a cut is only another mid-cycle adjustment.
“Pressure has been growing on the Fed to act more aggressively but I think they will still ere on the side of caution and that will not be good news for gold,” he said.
This week, 17 market professionals took part in the Wall Street survey. A total of 8 voters or 47% called for gold to be higher. Meanwhile, five analysts or 29% said that they see lower prices in the near-term. Four analysts or 24% saw sideways price action next week.
Meanwhile, 1,500 respondents took part in an online Main Street poll. Participation in this week’s survey hit a fresh one-year high. Looking at the results, a total of 914 voters, or 61%, called for gold to rise. Another 346, or 23%, predicted gold would fall. The remaining 240 voters, or 16%, saw a sideways market.
Wall Street
47%
29%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. As 1:03 p.m. EDT, Comex December gold futures were trading at $1499.30 an ounce down around 1% from the previous week.
This is the third consecutive week of losses for the gold market as prices have fallen sharply from last month’s six-year high.
Wall Street and Main Street both have an 18-15 winning record for the year to date, meaning respondents have been right 55% of the time.
David Madden, market analyst at CMC Markets said that he remains bullish on gold as market uncertainty remains prevalent throughout financial markets, even when there is strong risk on sentiment. He pointed out that gold is holding around $1,500 as the S&P 500 is trading above 3,000 points and is looking at testing new record highs.
“People are just not giving up their gold,” he said. “If gold can hold around $1,500 when investor sentiment is positive, what will happen when sentiment sours again?”
Madden added that the Federal Reserve will have to leave interest rates unchanged next week to really rattle gold bulls, which is an unlikely scenario.
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, said that he expects to see higher prices next week as the market as probably priced in a lot of potential bad news from the Federal Reserve next week.
“Gold could react [positively] to any continuing easing,” he said. “The [European Central Bank] did not disappoint, and the Fed likely won’t.”
Although some analyst are expecting to see lower prices next week, they are not completely ready to give up on the long-term rally.
Charlie Nedoss, senior market strategist at LaSalle Futures Group, said that he could see gold prices retest support at the 50-day moving average, which comes in around $1,485. However he added that he expects that any drop next week will be bought.
“I don’t think any off the issues have been resolved and that is still supportive in the long-term for gold,” he said.
Although thawing trade tensions between the U.S. and China have weighed on gold, Nedoss described the situation as “putting a small Band-Aid on a gaping wound.”
For many analysts the $1,485 level is a critical line in the sand. If that support line breaks it could encourage the gold bears to start selling.
