Powell's comments revive gold bulls as precious metal supported by weaker U.S. dollar


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(Kitco News) - Sentiment in the gold market has completely shifted among Wall Street analysts after hearing one phrase from Federal Reserve Chair Jerome Powell: the U.S. economy has not reached "substantial further progress" to warrant a slow down of its bond purchasing program.

With gold prices looking to end the week near a six-week high, market analysts did not cast one bearish vote in the latest Kitco News Weekly Gold Survey, a sharp turnaround from the solid bearish sentiment seen last week.

Comments from analysts show that gold's reversal of fortunes is due to the Federal Reserve following more dovish than expected comments from Powell.

"There is increasing evidence, and realization among investors, that the world's major central banks, including the Federal Reserve, will not be tightening in any hurry. The Fed continues to increase its balance sheet, despite talk about reducing it," said Adrian Day, president of Adrian Day Asset Management. "This is very bullish for gold."

This week 14 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 11, or 79%, called for gold prices to rise next week; simultaneously, only three analysts, or 21%, expect to see sideways trading in the near term.

Meanwhile, 862 votes were cast in online Main Street polls. Of these, 155 respondents, or 70%, looked for gold to rise next week. Another 155, or 18%, said lower, while 101 voters, or 12%, were neutral on the price.

Powell's comments revive gold bulls as precious metal supported by weaker U.S. dollar
Bullish Powell's comments revive gold bulls as precious metal supported by weaker U.S. dollar
Bearish Powell's comments revive gold bulls as precious metal supported by weaker U.S. dollar

Neutral

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Bullish Powell's comments revive gold bulls as precious metal supported by weaker U.S. dollar
Bearish Powell's comments revive gold bulls as precious metal supported by weaker U.S. dollar

Neutral

Main Street has been consistently bullish on gold even as prices have struggled to find momentum in an environment of falling real bond yields. Last week 60% of Wall Street analysts were bearish on gold. December gold futures are looking to end the week with a 1% gain, last trading at $1,826.40 an ounce.

Not only did Powell's comments help to push the gold market out of its doldrums, but they have also weighed on the U.S. dollar, which is looking at its worst weekly performance since May.

Analysts have said that a weaker U.S. dollar will continue to support gold prices next week.

"I think [the U.S. dollar] may continue to backslide in the short term then potentially bounce later in August," said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Adam Button, chief currency strategist at Forexlive.com, said that he also expects to see a weaker U.S. dollar to support gold prices next week. "The U.S. dollar will remain under pressure as inflation fades and the Fed takes a patient approach. Europe is also coming out of the pandemic better than anticipated," he said.

David Madden, market analyst at Equiti Capital, said that he expects gold to continue to push higher as the U.S. dollar appears to have plateaued. He added that Thursday's economic data, which showed the U.S. GDP grew 6.5% in the second quarter, could cap U.S. dollar strength in the near term.

GDP growth in the second quarter was significantly weaker than expected as economists were looking for an increase of 8.5%. "It was a surprising number, and I think it I think the Fed will have to put its taper plans on hold," said Madden.

"I wouldn't want to short the U.S. dollar, but some of the mixed data could mean that it has plateaued," he added. "With a weaker U.S. dollar, it is more likely we will see gold at $1,900 an ounce before $1,700 an ounce. But I wouldn't be making a lot of aggressive moves in gold,"

Although the sentiment is bullish in the gold market, some analysts warn that the precious metal still faces some significant resistance points.

Darin Newsome, president of Darin Newsome Analytics, said that gold is still stuck in a broader range despite the recent bounce. He said that he sees resistance at $1,839 an ounce and support at $1,793 an ounce.

"There is a lot of indecision in the market(s) at this time," he said. "If [Dember] gold breaks this range next week, it will likely be a knee-jerk reaction to Friday's July jobs numbers."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.