Wall Street turns bearish on gold’s prospects with FOMC on deck, Main Street maintains its

(Kitco News) – Following last week’s record-setting performance punctuated by a series of successive all-time highs, spot gold settled into an elevated but relatively stable channel between $2,184 and $2,153 per ounce this week. 

A hotter-than-expected CPI report on Tuesday knocked gold to the bottom of the range, as did a weak retail sales report and an elevated PPI reading on Thursday, but dip buyers came in strong each time and pushed the precious metal higher.

The latest Kitco News Weekly Gold Survey showed last week’s bullish sentiment among market experts has largely evaporated, while retail traders remain optimistic about gold’s chances for continued gains next week.

“I’m going to stick with down for another week given the short-term trend on April’s daily chart,” said Darin Newsom, Senior Market Analyst at Barchart.com. “That being said, the contract has not confirmed this trend with a new 4-day low, this support sitting at $2,156.20 heading into Friday sessions.”

“Fundamentally, what could put pressure on gold next week? It is basically a foregone conclusion based on Fed Chairman Powell’s own comments, the US FOMC likely won’t cut rates at the conclusion of its meeting next Wednesday,” he said. “Theoretically, this could give a spark to the US dollar and put pressure on gold. Market bulls will argue that since no rate cut is factored in, and based on the idea of ‘Sell the rumor, buy the fact’ gold should rally.”

“For now, I’ll stay with the downtrend,” Newsom concluded, “particularly if the 4-day low is taken out.”

Ole Hansen, head of commodity strategy at Saxo Bank, maintained his bearish bias ahead of the U.S. central bank meeting. “Calling it lower for a second week with the risk of a deeper correction, fueled by hedge funds’ long liquidation, remaining the biggest risk,” he said. “Especially following a week where higher than expected CPI and PPI prints led the market to price in a further rate cut delay.”

For his part, Adrian Day, President of Adrian Day Asset Management, sees no reason to stop being bullish. “The gold price is showing resiliency in the face of the Federal Reserve and other central banks delaying the start of easing,” he said. “The market is looking ahead to the easing that almost certainly lies ahead.”

“I am neutral on gold for next week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “I think it could make a move following the Fed meeting, but direction will depend on what Powell says.”

Bob Haberkorn, Senior Commodities Broker at RJO Futures, said gold prices are showing a great deal of sensitivity to inflation data ahead of the Fed as they try to determine the likely path for rates.

“I think the hits this week were just the realistic possibility that the Fed is probably not in a position to be cutting rates right now,” He said. “That is what you saw here with the sell off, was CPI, PPI both coming in hotter than expected. The month before it was the same thing. And in terms of expectations, three months ago we would have been talking probably March, they would be doing rate cuts, but that’s obviously been pushed back a few times now.”

“How can they be talking about rate cuts when CPI, PPI are showing the levels they’re showing?”

Haberkorn speculated as to the FOMC statement following the high inflation readings. “What’s the Fed going to say next week? Are they going to say that they have to hold steady? I mean, there’s a possibility they might even have to say something about raising rates with the data we’ve been seeing here,” he said.  “Some of the metal traders I talk to who trade in and out, it’s building a wait-and-see attitude. I think our metals, gold and silver, look like they want to go higher on the day. But with equities getting hit as hard as they are, it feels like risk-off, and I could see some liquidation as the day goes on here in metals.”

Haberkorn said that he could see a bit of a pullback in precious metals next week, but the drops will be shallow and short-lived. “I think the selloffs will be limited because with gold at all-time highs, and given how high interest rates are, gold shows that this is definitely flight-to-safety. There’s concern out there about U. S. government spending, and concern about the dollar, and people want to protect themselves, whether it be in the physical market or in the futures market.”

“Normally, if interest rates were this high, gold would not be hitting all-time highs,” he added. “It just shows that there’s such a fear trade out there right now. Gold will probably sell off after their announcement, but I think that that dip will get bought up.”

This week, 11 analysts participated in the Kitco News Gold Survey, and nearly three-quarters of Wall Street respondents now expect gold prices to decline or trend sideways. Only three experts, or 27%, expected to see higher gold prices next week, with an equal proportion predicting it would be rangebound. The largest proportion, six analysts representing 46%, predicted a drop in price for the precious metal.

Meanwhile, 194 votes were cast in Kitco’s online polls, with the majority of Main Street investors still predicting further gains for gold next week. 110 retail traders, representing 56%, looked for gold to rise next week. Another 54, or 29%, predicted it would be lower, while 30 respondents, or 15%, were neutral on gold’s near-term prospects.

Central banks take center stage next week, with interest rate decisions forthcoming from the Bank of Japan and the Reserve Bank of Australia on Monday, the U.S. Federal Reserve on Wednesday, and the Bank of England and Swiss National Bank on Thursday.

Markets will also be paying attention to U.S. housing starts and building permits on Tuesday, as well as weekly jobless claims, the Philly Fed manufacturing survey, Flash PMI, and existing home sales on Thursday.

“Next week is about central banks,” said Marc Chandler, Managing Director at Bannockburn Global Forex. “Market is having second thoughts about June Fed cut. That has given the dollar some support. I think a BOJ hike is more likely in April, but the SNB could surprise with a cut to jump ahead of the ECB, which is likely to cut in June.  Mexico’s central bank could also surprise with a cut.  If it does not cut, the next opportunity is in May, which may be too close to the June 2 election for the fiercely independent central bank to shift policy.”

“I like gold lower in the next week or so,” Chandler said. “A break of $2150 could see $2130 and maybe $2110, but I suspect potential extends to $2100.”

James Stanley, senior market strategist at Forex.com, said that after all of its recent gains, gold is due for a down week.

“Given the pace of the breakout and the stall inside of $2200, it looks like gold needs a pullback, and with the Fed on Wednesday it makes sense to see some profit taking ahead of that,” he said. “There’s likely a lot of investors that have loaded up of late that might want to take some profit off the table given that the breakout has started to stall, especially with a major driver on the horizon.”

That said, Stanley thinks there’s a lot of uncertainty surrounding what the Fed will say. “The SEP will probably be the big driver around the decision, so however they decide to push forecasts, that’s likely going to feed into the market reaction,” he said. “Given data they should cool the rate cut talk, but that hasn’t been their drive of late as they’ve been really very dovish. And this is why gold has exploded higher of late. So I think there’s a decent chance we see the trend return after the Fed on Wednesday.”

Adam Button, chief currency strategist at Forexlive.com, also thinks the Fed’s ‘dot plots’ will be a major focus for markets next week, as they could signal a shift from three cuts to two in 2024.

“When you get the headline that the dots moved 75 to 50, probably gold falls $30,” Button said. “And I’d fade that. I think it’s really a classic sell-the-rumor, buy-the-fact type of trade.”

But despite the strong likelihood of a pullback in the wake of the FOMC announcement and accompanying data, Button said the yellow metal has already chosen its direction going forward. “Gold has already voted,” he said. “Gold has broken out. It’s a buy-the-dips gold market from here on out. And whether it’s the Fed or something else, unless there’s a true game-changer, that’s going to be the game.”

He added that losing one 25-basis-point cut this calendar year doesn’t change the fundamental calculus for traders. “At the end of the day, do I care if the Fed cuts in June or September?” he asked. “All I care about is that I’ve got a Fed put. If anything goes wrong, I know the Fed’s going to cut. And if it’s not in June, then it means the global economy is doing great. So, why should I worry?”

Button said that with gold already hitting new all-time highs week after week while most investors are still on the sidelines, he likes the prospects for gold, as well as silver and the mining stocks, once the investment community finally joins the party.

“It’s just a wonderful setup,” he said. “You have everything in place for what could be an ongoing, aggressive move higher, including a turn in the dollar. If the dollar were to turn down and gold didn’t go higher, I would have concerns. The dollar is still very close to its highs, and so is gold. So I really think that in a lot of the metals, when the dollar turns, the money will flow, and suddenly something like $2,500 seems too conservative.”

And Mark Leibovit, publisher of the VR Metals/Resource Letter, is also expecting a short-term pullback in gold prices. “Exited the majority of our gold stock and index positions earlier this week looking for a pullback, but still overall bullish,” he said. “The exception is Silver which is trying to catch so we are long the Silver ETF.”

Spot gold last traded at $2,157.60 at the time of writing, down 0.28% on the day and 1.06% on the week, while spot silver last traded at $25.172 for a gain of 1.58% on the day and 3.54% on the weekly chart.