The new year was a solid start for the gold market as prices closed the week at a nine-month high. The weakness in the US dollar remains the biggest factor affecting the sentiment in the precious metals market.
BofA and HANetf positive on gold
cryptocoin.comAs you follow, the gold market has been up for five consecutive weeks as prices rose more than 5% in the first month of 2023. And although there is a strong bullish sentiment in the market, there is still a bit of a missing piece in the market. The fact that investors are still not jumping into the market is causing some analysts to question how sustainable this new rally is. Gold prices are up 5% this year, while data from SPDR Gold Shares, the world’s largest gold-backed exchange-traded fund, show demand for ETFs continues to decline.
As of January 19, GLD’s gold stocks fell by 5.21 tons. The question is: is the price following the broader investment demand or will ETF purchases rally to reflect the bullish sentiment in the market? Outflows in the ETF market have slowed, but not over. At the same time, there are concerns that silver is not seeing the same bullish sentiment as gold. Silver outperformed gold throughout November and December, trading at around $24 an ounce.
This week Bank of America (BofA) released a very positive report on gold. Analysts said they expect the precious metal to be the mainstay for the next three years. BofA is not alone in its bullish outlook either. In November, European fund manager HANetf surveyed 100 European and British wealth fund managers. According to the results, 89% of the respondents said they plan to increase their investment rate in gold. “Most of the negative sentiment towards gold may have passed,” Tom Bailey, HANetf’s head of ETF research, said in the report.
“Gold prices will rise to new record levels this year”
As for what’s triggering sentiment in precious metals, the biggest factor remains the weakness in the US dollar. The US dollar index (DXY) is down more than 10% since its 20-year high in September. The US dollar is losing momentum as markets expect the Federal Reserve to slow down its aggressive tightening cycle, analysts said. Markets have almost completely priced in a 25bps move by the US central bank next month.
Economist David Rosenberg expects the February meeting to be the Fed’s last hike. He adds that the approaching recession will force the central bank to cut interest rates in the second half of the year. So, in this environment, he expects gold to be an attractive asset and predicts prices will soar to new record highs of over $2,000 this year.
Advice from analysts to bullion investors
While most analysts remain long-term gold bulls, many say the Fed’s monetary policy decision next week poses too much risk in the market and investors may want to keep their profits at current levels. The general advice for investors looking to get in was not to follow the market at current prices.
“Gold made a great debut, but…”
Colin Cieszynski, chief market strategist at SIA Wealth Management, says the Fed is neutral on gold next week as it is unclear what to do. He notes that Friday’s inflation data showed the Index of Personal Consumption Expenditures excluding food and energy rose 4.4% in December. He points out that this is the first inflation indicator to fall below the Fed Funds rate. He adds that it is unclear whether this data point will be enough to convince the central bank that it has got inflation under control.
There is a risk that the Fed will raise interest rates by 25 basis points next week. However, it could do so in a hawkish tone that could bolster the US dollar and put pressure on gold. Cieszynski says the US dollar will be the key to gold’s direction next week. In this context, the analyst makes the following statement:
The main driver of gold was the change in the US dollar. After its sell-off, the US dollar risks finding some support next week. Gold made a great debut and I expect prices to rise even higher this year. But it needs to be consolidated.
Wall Street and Main Street diverged in gold survey
The gold market has managed to further increase its weekly gains for the sixth time in a row. However, sentiment, especially among Wall Street analysts, has turned bearish as they want to see some consolidation before hitting $2,000. The Kitco Weekly Gold Survey shows Main Street traders continue to rise significantly in gold. This marks the first divergence for 2023 between the two survey groups. This week, 19 Wall Street analysts took part in the Kitco Weekly Gold Survey. Among the respondents, 10 analysts (53%) were down on gold in the near term. At the same time, three analysts (16%) were bullish for the next week and six (32%) predicted that prices would move sideways.
Meanwhile, 1,127 votes were cast in online polls. Of these, 723 (64%) expect gold to rise next week. Other 251 (22%) said it would be lower, while 153 voters (14%) remained neutral in the near term. Aside from the bullish sentiment among retail investors, this week’s survey turnout has reached its highest level since early December, suggesting investors are starting to pay attention to gold again.
“Not ready to give up on yellow metal momentum”
Mark Leibovit, publisher of VR Metals/Resource Letter, one of the top three analysts in this week’s survey, says he’s not ready to give up on gold’s momentum. The gold market briefly entered a technical bull market this week, with prices rising 20% from a two-year low in November. “While technically nervous, I prefer to be suspicious of a bull trend,” Leibovit says.
Most analysts expect gold prices to see selling pressure again as markets may be underestimating the Federal Reserve’s hawkish stance. Currently, the markets are pricing in a 25 basis point move next week. It also sees another rate hike in March to end the current tightening cycle. At the same time, markets began pricing in a rate cut from September.
“I will get gold if there is a pullback!”
But Adam Button, chief market strategist at Forexlive, says running out of gold could be a sign that some investors don’t think the Fed is ready for a break. “If anything, they will be more hawkish than the market expected. So for the first time in months, I’m being cautious about gold,” he says.
Adrian Day, head of Asset Management, says he thinks the gold market is vulnerable in the near term as a potential slowdown by the Fed could disappoint. However, he adds that he will buy gold upon withdrawal. With so much bullish sentiment in the market, many analysts think it’s only a matter of time before investors return to gold.
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