Sentiment in gold improves as wage inflation picks up
(Kitco News) – Rising inflation pressures and central banks that are in no hurry to raise interest rates are boosting sentiment in the gold market as prices look to end the week above $1,800 an ounce.
Although analysts see room for gold prices to move higher, a few still note that the market faces significant overhead resistance. For gold to regain its luster and attract new momentum, prices have to ultimately push above $1,835 an ounce, according to some analysts.
This week 18 Wall Street analysts participated in Kitco News’ gold survey. Among the participants, ten analysts, or 56%, called for gold prices to rise next week. At the same time, two analysts, or 11%, were bearish on gold in the near term, and six analysts or 33% were neutral on prices.
Meanwhile, A total of 622 votes were cast in online Main Street polls. Of these, 326 respondents, or 52%, looked for gold to rise next week. Another 188, or 30%, said lower, while 108 voters, or 17%, were neutral.
The bullish sentiment comes as gold prices look to end the week with solid gains above $1,800 an ounce. This is the first time gold has managed to end the week above $1,800 since late September. December gold futures last traded at $1,810.60 an ounce, up 1.5% on the day.
The rally in gold also comes the same day the U.S. government reported stronger than expected employment numbers in October. The U.S. Labor Department said that 531,000; economists were expecting to see job gains of around 425,000.
However, according to some analysts, despite the strong headline number, gold investors focused on rising wage inflation. The report said that wages have increased by 4.9% in the last 12 months.
“We’ve been waiting for the inflation theme to start playing out in the gold market and it looks like this could be the start,” said Ole Hansen, head of commodity strategy at Saxo Bank. “If inflation does start to pick up and central banks are behind the curve, then you will want to have a few gold coins in your pockets.”
However, although Hansen is bullish on gold in the near term, he added that $1,835 remains the critical level gold needs to break.
Phillip Streible, chief market strategist at Blue Line Futures, said that he is also watching $1,835 an ounce. He added that he is neutral on gold until that level breaks.
“A close above $1,835, and you will see all the shorts surrender and gold prices really start to move.”
Not only are inflation pressures rising, but the Federal Reserve and other central banks continue to downplay the growing threat. While the U.S. central bank said this week that it is reducing its monthly bond purchases, Federal Reserve Chair Jerome Powell said that this is not the right time to raise interest rates.
Following the Fed’s monetary policy decision, the Bank of England defied expectations and left interest rates unchanged. Markets were looking for the BoE to raise interest rates.
Adrian Day, president of Adrian Day Asset Management, said that he is bullish on gold as the Fed’s “bark is worse than its bite, and that, with regard to inflation, it is too little too late.”
However, not all analysts are optimistic about the precious metal. Darin Newsom, president of Darin Newsom Analysis, said that gold prices need to push above $1,815 an ounce to break its current sideways pattern. However, he added that the U.S. dollar is attracting some bullish attention as the U.S. dollar index trades at a critical resistance point at 93.50 points.
“If this holds and the dollar rallies, gold could put an early top in next week,” he said.
Marc Chandler, managing director at Bannockburn Global Forex, said that he is not convinced gold is ready to break out. He added that next week’s Consumer Price Index data could end up driving interest rates higher along with the U.S. dollar, which would weigh on gold prices.
David Madden, market analyst at Equiti Capital, said that he is also watching the U.S. dollar. However, he added that the greenback could be forming a near-term top following the Fed’s monetary policy meeting.
He said that a lot more positive economic data is needed to create new momentum for the U.S. dollar.
“I wouldn’t dream of going short the U.S. dollar, but it might be topping out that that should be positive for gold in the near term,” he said.
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