By Paul Ploumis 20 Jul 2015 Last updated at 04:11:25 GMT
(Kitco News) - According to one analyst, a dark mood is hanging over the gold market and with the Federal Reserve looking to hike rates in September it doesn’t look like gold’s weakness will end in the short-term.
“It’s not just gold either. When you see all the commodities selling off it is difficult to be positive,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.
Not only are Comex August gold futures ending their fourth consecutive week in negative territory – down more than 2.6% since Monday – but strong selling pressure Friday morning drove prices to a session low of $1,129.60 an ounce, its lowest price since April 2010.
Silver prices are also ending its fourth week in negative territory, falling more than 4.5% since Monday. Silver prices didn’t dip below last week’s low at $14.62 an ounce, but there was no renewed buying interest during Friday’s selloff. Comex September gold future are ending the week below $15 an ounce, for the first time since September 2009.
Looking ahead, pessimism is extremely strong in the marketplace. The majority of market professionals and retail investors are bearish on the yellow metal next week, according to the results of the Kitco News Wall Street vs. Main Street Weekly Gold Survey.
This week, 364 people participated in Kitco News’ online survey. Of those, 247 participants, or 68%, expect to see lower gold prices next week; 90 participants, or 25%, see higher gold prices; and 27 people, or 7%, are neutral.
Out of 33 market experts contacted, 19 responded, of which four, or 21%, said they are bullish on gold next week. At the same time, 13 professionals, or 68%, said they are bearish, and two people, or 11%, are neutral on gold. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Bernard Dahdah, precious metals specialist at Natixis, said there is not a lot of positive news for the gold market. Negative news in the gold market include, a resolution of the Greek credit crisis, reduced concern of the Chinese economy, expected higher interest rates and a stronger U.S. dollar, he said.
“I just don’t see a lot of positives for the gold market right now,” he said.
Even the news that China increased its official gold reserves by 57%, the first increase in six years, was not enough to boost market sentiment.
“It was disappointing because they added a smaller amount than expected to their reserves,” he said.
For most analysts the biggest hurdle for the gold market remains the fact that the Federal Reserve is still expected to hike rates, with expectations shifting between September and December.
Some analysts also note that gold’s technical pattern will play an important role in next week’s price action. After creating new five-year lows, many analysts now expect to see a test of $1,100 an ounce in the medium term.
“Gold prices still look to come under pressure from a strengthening USD, the prospects of a rate hike coming soon and a deteriorating technical picture,” said Phillip Steible, senior market strategist at RJO Futures. “The market remains below the 50 DMA and 200 DMA and a washout to $1100 could be in the cards.”
“There's no visible chart support until [around] $1000 but I expect Gold will find some solid footing [around] $1100,” said Ken Morrison, editor for the newsletter Morrison on the Markets.
However, Morrison is not completely pessimistic as he does see some hope for a technical rebound adding “bullish sentiment is approaching an extremely low level that often precedes a counter-trend rally.”
Next week is fairly light for economic data but some sales data could help support the view that the U.S. economy is improving, strengthening the Fed’s resolve to lift interest rates off the floor.
As for whether or not the new lows will be enough to encourage some physical buying next week, some analysts remain doubtful. Dahdah, said that a sharper drop might be need to encourage investors to jump into the gold market but it would have to be something similar to the 30% falls seen in 2013.
Jessica Fung, commodity analyst at BMO Capital Markets, said that the Chinese sources she has talked to have said that prices would probably have to fall to around $900 an ounce before they jumped back into the market.
“They were burned once in 2013 and I think they are hesitant to jump in again until prices show a real bargain,” she said.
Until that time, Gero, recommends investors continue to sit on the sidelines and wait for a potential technical rebound. With so many short positions in the marketplace, he added that any renewed buying could create some strong short-covering.
“The mood is very dark but you have the potential for a fairly significant rebound,” he said.
Courtesy: Kitco News
