(Kitco News) - Bullish sentiment continues to creep back into the gold market, but while prices have room to go higher next week, neither Wall Street analysts nor Main Street retail investors expect to see a major breakout.
After weeks of drifting sentiment and lackluster interest, retail investors are once again looking at gold and precious metals, according to the latest Kitco News Weekly Gold Survey. At the same time, market analysts are slightly more cautious about gold ahead of next week.
Daniel Pavilonis, senior market strategist at RJO Futures, said that while weak inflation data will continue to support gold prices, there are good reasons why investors should be cautious at these levels.
He added that many investors continue to sit on the sidelines, waiting for the Federal Reserve to signal that it is ready to stop raising interest rates. He noted that there still isn't enough information to give a definitive answer on interest rates.
"We still aren't in restrictive territory, so the Fed could be reluctant to back out on the inflation fight right now," he said. "That could keep bond yields elevated and cap gold's move."
However, Pavilonis said that once it's clear the Fed is done raising interest rates, gold could easily take off.
"Gold still looks attractive at these levels because, in a neutral rate environment, there are other factors that can drive gold prices. Once the Fed is done raising interest rates, investors will turn to gold as a safe-haven or geopolitical hedge.
At the same time, many analysts are bullish on gold as the U.S. dollar sees its worst selloff since November. The U.S. dollar index is looking to end the week below 100 points, down more than 2.2%.
However, analysts also note that gold isn't seeing a massive benefit from the breakdown in the U.S. dollar. August gold futures last traded at $1,964.30 an ounce, up 1.7% for the week. Gold is seeing its best weekly performance since April.
This week, 20 Wall Street analysts participated in the Kitco News Gold Survey. There was a tie among the participants, with nine analysts, or 45%, seeing higher and sideways prices next week, respectively. At the same time, two analysts, or 10%, were bearish on gold in the near term.
Meanwhile, 592 votes were cast in online polls. Of these, 363 respondents, or 61%, looked for gold to rise next week. Another 148, or 25%, said it would be lower, while 81 voters, or 14%, were neutral in the near term.
Wall Street
45%
10%VS
Main Street
61%25%Bullish sentiment among retail investors has jumped to a one-month high. However, even Main Street is skeptical that the market is ready to break out as they see prices ending the week around $1,979 an ounce.
James Stanley, market strategist at StoneX, said that he sees gold prices testing resistance at $1,980 in the near term.
"Connecting with what I had looked at last week, bulls finally took that next step to push through resistance after the support held at $1,900," he said. "I wouldn't consider bulls in the clear at this point, but the ball is in their court for now and the big question is how forceful sellers react upon resistance tests at 1980 or 2k."
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However, not all analysts are bullish on gold next week. Darin Newsom, senior market strategist at Barchart.com, said that gold looks a little stretched.
"While the intermediate-term trend has turned up on the August gold's weekly chart, the contract moved far enough, fast enough, to pull its daily chart into an overbought situation. Gold could see a few days of pressure to start next week, but I'm not expecting a washout," he said. "The US dollar index remains in a long-term downtrend, and that alone could provide underlying support to gold."
