Gold Prices Expected to Struggle Next Week, but Analysts See Buying Opportunity

Gold prices are facing a challenging period, with the precious metal finished its fourth consecutive week in negative territory. The market sentiment towards gold remains lackluster, with some analysts predicting a potential test of support at $1,800 in the short term.

Despite this, some analysts believe that economic uncertainty will continue to provide support for gold over the long term. Phillip Streible, chief market strategist at Blue Line Futures, suggests that gold’s uptrend remains intact due to the threat of a recession caused by the Federal Reserve’s aggressive monetary policies.

Marc Chandler, managing director at Bannockburn Global Forex, believes that gold prices could fall to $1,800 an ounce in the near term but sees this as a potential buying opportunity for investors seeking a safe-haven asset. Chandler adds that sentiment towards the U.S. economy is overshooting and that buying gold on further weakness with a stop below $1,800 may offer an attractive risk-reward.

In the latest Gold Survey, 13 out of 17 Wall Street analysts, or 76%, expressed a bearish sentiment towards gold for the near term. Only one analyst, or 6%, was bullish, and three analysts, or 18%, predicted prices would trade sideways. Online polls indicated that 45% of respondents believed gold prices would rise next week, 39% believed it would fall, and 16% were neutral in the short term.

As gold prices appear to end the week around $1,850 an ounce, the market sentiment remains downbeat. April gold futures closed at $1,851, which is a 1.2% drop from the previous week.

In this week’s survey, Darin Newsom, senior technical analyst at Barchart.com, was the only participant who had a bullish outlook. According to Newsom, gold might witness a brief bullish correction, given that the long-term support level seems to be holding.

Newsom said, “April gold completed the short-term downtrend on its daily chart, reaching a low of $1,827.70 Friday morning. I’m looking for the contract to move higher short-term. It would not be a surprise to see daily stochastics establish a bullish crossover… Then we’ll wait to see if the contract can complete a bullish reversal pattern.”

While some analysts hold a positive outlook for gold in the short term, the general market sentiment remains negative. Markets are recalibrating their Federal Reserve monetary policy expectations, which is leading to a challenging environment for gold. This is due to hotter-than-anticipated inflation data this week and hawkish remarks from central bank committee members, leading to expectations that the Fed Funds rate could rise to 5.5% in H1 2022.

Frank McGhee, head precious metals dealer for Alliance Financial, believes that the idea of the Fed pivot was unrealistic. He stated that persistent inflation will result in a higher terminal rate, with the Fed Funds rate remaining high for an extended period. Higher interest rates are associated with lower metal prices.

The yield on U.S. 10-year Treasury notes is currently trading above 3.8%, around its highest level since late December. At the same time, the U.S. dollar Index is trading above 104 points, its highest level since November.

According to Adrian Day, the president of Adrian Day Asset Management, he is neutral on gold for next week given the current environment. He believes that there will be a correction for the exaggerated January move-up, but the longer-term outlook for gold remains positive. He expects a sluggish global economy and persistent inflation, creating a favorable environment for gold.