(Kitco News) – A growing divergence in global interest rates, which is supporting the US dollar, is generating bearish sentiment among Wall Street analysts, even as retail investors remain bullish on the precious metal.
Last week, the European Central Bank reaffirmed its commitment to maintain its ultra-accommodative monetary policy for the foreseeable future in order to bring inflation down to 2%. The ECB’s commitment “to react with force and persistence” to push inflation up contrasts sharply with the Federal Reserve, which is currently talking about reducing its monthly bond buying program.
David Madden, market analyst at Equiti Capital, said the US dollar appears relatively undervalued in the current environment and the growing monetary policy gap between the Federal Reserve and the ECB. He added that gold could continue to struggle in the near term against new strength in the US dollar.
Madden added that an improvement in the US economy, propelling stock markets to record highs, will also be a hurdle for gold.
“Why would you have money languishing in the gold market when you can put it to profit in stocks,” he said.
This week, 15 Wall Street analysts took part in the Kitco News gold survey. Of those attending, nine, or 60%, called for a drop in gold prices next week; simultaneously, only two analysts, or 13%, expect to see higher prices next week, and four analysts, or 27%, expect to see short-term sideways trading.
Meanwhile, 571 votes were cast in Main Street’s online polls. Of those, 315 respondents, or 55%, expected gold to rise next week. Another 146, or 26%, said lower, while 110 voters, or 19%, were price neutral.
Although Main Street remains bullish on gold, interest in the precious metal is clearly declining. Participation in the online survey is at its lowest since the end of November 2019.
The mixed sentiment on gold comes as prices prepare to end the week in negative territory. August gold futures traded for the last time at $ 1,804.70 an ounce, down 0.5% from last Friday.
Gold’s poor performance of late has been reason enough for some analysts to turn bullish on the precious metal. The price of gold failed to break its chains at $ 1,800 an ounce even as the yield on 10-year notes fell to its lowest level since February.
Now that bond yields have broken Tuesday’s multi-month low, some analysts have said gold could end up falling below $ 1,800 an ounce.
“I’m inclined to see it lower next week, mainly because of what I think is a rise in US yields,” said Marc Chandler, managing director of Bannockburn Global Forex.
Colin Cieszynski, chief market strategist at SIA Wealth Management Inc, said he was also watching June lows at $ 1,760 as a major support level.
Nicholas Frappell, global managing director of ABC Bullion, said he sees gold prices stuck in a range with short-term downside risks due to the growing momentum of the US dollar.
“Below US $ 1,790, gold will be vulnerable to a slightly deeper decline,” he said. “I see bullish rallies finding resistance at US $ 1,812 and US $ 1,819. ”
Rob Haworth, senior investment strategist at US Bank Wealth Management, said gold is relatively strong as it continues to maintain support above $ 1,800 an ounce; However, he added that the growing economic recovery in the United States means that real interest rates will start to rise and that will prove to be a tough headwind for gold.
He added that in the current environment, he sees gold on the defensive in the short term.
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