(Kitco News) - Rising market volatility could weigh on gold prices as the market remains in an uptrend, but mixed sentiment shows it's not ready to make sustainable record highs just yet.
The latest Kitco News Gold Survey shows bearish sentiment has a slight advantage among Wall Street Analysts. At the same time, retail investors remain significantly bullish and look for the precious metal to regain its luster after a sharp drop on Friday.
The mixed sentiment comes as the gold market looks to end the week holding critical support above $2,000 an ounce but solidly down from its test of all-time highs above $2,080 an ounce. Analysts have said the market continues to react to extremely fluid interest rate expectations.
Wednesday, after raising interest rates by 25 basis points, the Federal Reserve shifted its monetary policy into a more neutral stance; at the same time, markets started pricing in the potential for a rate cut as early as July.
Heading into the weekend, solid employment data, with the economy creating 253,000 jobs in April and wages rising 5%, tarnished those expectations, causing gold prices to fall to a session low of $2,007 an ounce, a drop of more than 2% on the day.
Analysts note that rising wages continue to point to persistently elevated inflation, which will force the Federal Reserve to maintain its hawkish monetary policy stance.
"I do think gold can and will eventually produce a sustained break above $2,000, but I'm still unconvinced that we're in a position where that can happen right now," said James Stanley, senior market strategist at Forex.com. "The factor that ultimately propels gold beyond $2k in a sustainable way is the Fed pivoting not only into a pause but possible cuts or perhaps even QE. And I think the probability of that, when Core CPI is over 5% and the unemployment rate is at 3.4%, is low."
Thorsten Polleit, chief economist at Degussa, said that he also sees gold potentially struggling in the near term as it's unlikely the Federal Reserve will cut interest rates before the summer.
However, he added that the volatility is creating solid entry points for investors looking to build a long-term position in the gold market.
"I'm not too concerned on days like this. I see this volatility as noise. But this is the time to buy because the long-term trend is higher," he said.
This week, 22 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, seven analysts, or 32%, were bullish on gold in the near term. At the same time, nine analysts, or 41%, were bearish for next week, and six analysts, or 27%, saw prices trading sideways.
Meanwhile, 774 votes were cast in online polls. Of these, 500 respondents, or 65%, looked for gold to rise next week. Another 163, or 21%, said it would be lower, while 111 voters, or 14%, were neutral in the near term.
Wall Street
32%
41%VS
Twitter poll
65%21%Retail investors also expect to see a solid recovery in gold, with prices expected to end the week around $2,060. The bullish outlook comes as June gold futures look to end the week around $2,023 an ounce, up 1% from last Friday.
Some analysts noted that Friday's selloff and its ability to hold support at $2,000 an ounce could attract investors next week.
"I think you have to buy these dips. Gold remains an important store of value," said Phillip Streible, chief market strategist at Blue Line Futures. "Bullish sentiment around the labor market will fade as fears of the banking crisis continues to grow."
Richard Baker, creator of the Eureka Gold Miner's Report, said he is bullish on gold as the U.S. continues to inch closer to a government default the longer the debt limit debate goes on. He added that this uncertainty will continue to support gold, similar to what happened in 2011.
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"We've seen this Congressional kabuki dance before - the 2011 U.S. debt crisis drove gold prices to a new record," he said. "Congress must raise or suspend the debt limit to avoid market calamity, but both sides of the debate remain intransigent. If cooler heads prevail and a default is avoided, gold prices could quickly fall back to earth. In the meantime, I standby last week's prediction that gold could reach or possibly surpass $2,450 in the coming weeks."
However, most analysts note that gold's failed breakout at $2,080 an ounce could lead to some consolidation in the near term.
Darin Newsom, senior market analyst at Barchart.com, said that he sees gold's price action creating a box-top formation. He added that the support level he is watching is $1,990.50 an ounce.
"If June gold breaks support, it would project a downside target near $1,927.50. That's a long way down. We'll see if it happens," he said.
