Amid the threat of a trade war breaking out between the U.S. and China, Wall Street and Main Street alike look for gold prices to continue their rally next week.
The yellow metal rose sharply this week and by late Friday morning was up some $40 from the lows of Tuesday. The first leg higher came when the Federal Reserve did not appear to be signaling any increase in policymakers' pace of monetary tightening in 2018. The second came on renewed worries about a trade war, particularly between the U.S. and China.
"Briefly cresting the important $1,350 level this morning, the yellow metal made substantial advances in U.S. dollar price as well as value compared to equities, commodities and major currencies," said Richard Baker, editor of the Eureka Miner Report. "Only oil outpaced the lustrous one on a percentage basis."
Twenty-one market professionals took part in the weekly Kitco News Wall Street survey. Sixteen respondents, or 76%, called for gold prices to rise over the next week. Another five voters, or 24%, looked for gold to fall. Nobody called for a sideways market.
Meanwhile, 945 voters took part in an online Main Street poll. A total of 575 voters, or 61%, said bullish. Another 281 voters, or 30%, said bearish, while 89, or 9%, were neutral.
For the trading week now winding down, there was not a majority vote in either survey. The largest voting blocs were 42% bearish for Wall Street and 44% bullish for Main Street.
Charlie Nedoss, senior market strategist with LaSalle Futures Group, is among the heavy Wall Street majority looking for continued strength in gold, citing potential for more weakness in the U.S. dollar and worries about a trade war that knocked equities sharply lower on Thursday.
"We have enough geopolitical uncertainty," Nedoss said. "The market is still talking about the fact the Fed didn't totally pencil in a fourth rate hike [for 2018]."
Ken Morrison, editor of the newsletter Morrison on the Markets, pointed out that new-money inflows dominated gold this week, as reflected by a 10% rise in the number of open futures positions during a time when the market was rising. "I expect the uptick in political and economic uncertainty have sufficient tailwinds to push gold into the $1,360 area," Morrison said.
However, Morrison cautioned that the chance that the U.S. administration will "water down" tariffs in the final version may be gold's biggest risk in the near term, so market participants need to monitor the details in the list of tariffs the administration promises in 15 days. "The bite may not be as bad as the bark," Morrison said.
Mark Leibovit, editor of the VR Gold Letter, also said higher for gold. "With heavy upside volume coming in on Wednesday, I'm going to give the upside the benefit of the doubt here, but do not want to see the week of March 19 lows broken," he said.
Among Main Street participants, a Florida-based Kitco reader named Max pointed out that gold is benefitting from a potential trade war.
"You saw the Dow Jones tank nearly 730 points [Thursday] along with new tariffs on China from President Trump," he said. "With the uncertainty right now, gold has been, and always will be, viewed as a safe haven and that's why the price is up the past few days."
Meanwhile, Baker looks for a pullback even though he also points out that the news flow this week "reminds market participants the wisdom of holding a little gold in their portfolios."
Still, Baker said, "I think it likely that some of this safe-haven enthusiasm will wane by next week as scary headlines transition to more moderate outcomes. Gold will consolidate around $1,340 and silver should find footing at $16.50 per ounce. In the case of heightened anxiety, gold may indeed challenge the $1,360 plateau."
Ralph Preston, principal with Heritage West Financial, also sees gold prices moving lower, saying that he looks for the U.S. dollar to begin to strengthen, thus challenging gold's ability to sustain a rally. However, he offers caution about potential buying on geopolitical news, citing a Financial Times opinion piece stating Israel may be days away from striking Hezbollah.
By: Allen Sykora at www.kitco.com