(Kitco News) - The gold market is preparing to end the first half of 2023 within striking distance of where it started the year, and sentiment in the marketplace points to lower prices in the near term as the precious metal faces challenging headwinds.
While bullish and bearish sentiment among Wall Street analysts is evenly balanced, the latest Kitco News Weekly Gold Survey shows that retail investors are maintaining a bearish bias.
Christopher Vecchio, head of futures and forex at Tastytrade.com, said that it is unsurprising that investors are shifting away from gold as solid economic activity continues to support risk assets. He added that with six-month money market funds offering a yield of more than 5%, investors are attracted to better-performing risk-adjusted assets.
"You can be forgiven for underperforming in a bear market, but you will never be forgiven for underperforming in a bull market," he said. "There has been this wall of worry in the marketplace, but so far, none of these fears have been realized, so investors feel more comfortable taking more risks."
Vecchio said that while gold prices appear to be holding support at $1,900 an ounce, he sees any bounce as short-term short-covering as investors take some profits off the table.
"Gold is facing a difficult environment as real yields are going up and will stay up for a prolonged period as central banks keep interest rates elevated, " he said.
Marc Chandler, managing director at Bannockburn Global Forex, said he is bullish on gold as a short-term shift in momentum pushes prices modestly higher. However, he added that he prefers to sell rallies in this environment.
"I look for a stronger dollar and higher U.S. rates, helped what should still be a reasonable strong jobs report on July 7. Yet, the momentum indicators for gold seem to be bottoming, and the potential hammer candlestick on June 29 suggests a bounce may be forthcoming," he said. " I can see the bounce toward $1920-30, but I would be more inclined to sell into it on ideas that the underlying drivers (U.S. rates and dollar) will reassert themselves."
This week, 21 Wall Street analysts participated in the Kitco News Gold Survey. In a tie, the participants, eight analysts, or 38%, voted bullish and bearish, respectively. At the same time, five analysts, or 24%, saw prices trading sideways.
Meanwhile, 845 votes were cast in online polls. Of these, 314 respondents, or 37%, looked for gold to rise next week. Another 374, or 44%, said it would be lower, while 157 voters, or 19%, were neutral in the near term.
Wall Street
38%
38%VS
Main Street
37%44%However, the average week-end price target among retail investors is $1,941 an ounce, representing a modest gain compared to current prices. August gold futures last traded at $1,926 an ounce, relatively unchanged from last week.
Adrian Day, president of Adrian Day Asset Management, also cast a cautious bullish vote; he explained that while gold prices could see limited gains next week, it remains caught in a tug-of-war between competing forces in the marketplace.
"There remains a near-term risk as the gold market does not appear to have fully priced in future rate hikes in the U.S. and elsewhere, while the U.S. treasury’s massive financing needs, catching up from earlier in the year before the debt ceiling was increased, will withdraw liquidity and hurt gold," he said.
Gary Wagner, editor of TheGoldForecast.com, said that improving economic conditions will continue to weigh on gold.
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"A robust economy, lower unemployment, and rising yields will confirm to the Fed that the U.S. economy can absorb further rate hikes," he said. "This will have to put bearish pressure on gold. If the dollar remains strong, it will add to that pressure. Dollar weakness will do the opposite, but not enough to fuel a rally of any strength."
Wagner said the one caveat to his bearish vote would be gold prices supported by rising geopolitical turmoil. Last week, the world witnessed a failed military insurrection in Russia, which provided little safe-haven demand for gold.
Most bullish analysts have noted that the uncertainty and growing risks support gold as a safe-haven asset.
