(Kitco News) - Solid bearish sentiment in the gold market indicates that prices aren't ready to move higher just yet; however, some analysts are watching the sector as an attractive contrarian play with prices potential close to a bottom.
The Kitco News Weekly Gold Survey shows that Wall Street analysts remain firmly bearish on the precious metal next week. While there is no clear majority among retail investors, the marketplace does have a bearish tilt.
The survey shows that retail investors are the most negative on gold since early September. In a new feature in this week's survey, retail investors were asked where they see prices by the end of the week. The average price for next week is $1,811.
The bearish outlook comes as gold prices look to end their fifth week in negative territory. April gold futures last traded at $1,816.50 an ounce, down 0.71% from last Friday.
According to analysts, persistent higher inflation is driving expectations that the Federal Reserve will maintain aggressive "higher-for-longer" monetary policies. This continued shift in the Fed Funds rate is pushing short-term bond yields to multi-year highs and creating new momentum in the U.S. dollar.
This week, 20 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, 13 analysts, or 65%, were bearish on gold in the near term. At the same time, two analysts, or 10%, were bullish for next week and five analysts, or 25%, saw prices trading sideways.
Meanwhile, 596 votes were cast in online polls. Of these, 230 respondents, or 39%, looked for gold to rise next week. Another 253, or 42%, said it would be lower, while 113 voters, or 19%, were neutral in the near term.
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39%42%Adam Button, head of currency strategy at Forexlive.com, said there is a growing possibility that the Federal Reserve will push interest rates to 6% this year. He noted that this could weigh on gold in the near term, but he still likes the precious metal as a long-term investment.
While recession fears appear to have abated for now, Button said that threat has probably just been pushed further down the calendar to early 2024. He added that, at some point, higher interest rates will cool down the economy.
"If the Fed does actually go to 6%, it just means it can cut 600-basis points later and that is good for gold," he said. "There will be a great time to own gold, now is just not it. At some point, inflation will crest and that is when we will see gold move."
Phillip Streible, head of market strategy at Blue Line Futures, said that he also expects any further rise in interest rates will eventually lead to aggressive cuts. However, he added that in the near term, the precious metal lacks a short-term catalyst to create any bullish momentum.
While $1,800 appears to be the line in the sand for retail investors, some analysts warn that prices could fall lower. Many are watching to see if support can hold at $1,785 an ounce, which represents the 200-day moving average.
At the same time, some analysts continue to see lower prices as a contrarian opportunity. Last week Marc Chandler, managing director at Bannockburn Global Forex, said he liked the idea of buying gold on a pullback to $1,800; this week, he reiterated that stance.
"Gold is no match for rising US interest rate and stronger US dollar environment, even if some media reports play up the demand from central banks. The yellow metal fell to new lows for the year, a little below $1812 ahead of the weekend," he said. "I still like the strategy suggested last week, buying on a pullback closer to $1800. Next week, I anticipate the beginning of more compelling evidence that Jan's econ strength was a fluke with softer auto sales and services ISM."
Michele Schneider, director of trading education and research at MarketGauge, said that she is bullish on gold as inflation and geopolitical uncertainty are bullish factors helping prices hold support at key technical levels.
"Gold is testing the low of a bullish cycle with lots of fundamental reasons - - like the rise in sugar futures and major geopolitical headwinds -- to support price," she said.
