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Bearish sentiment points to gold prices falling below $1,800 next week
By: Neils Christensen | May 13, 2022

The gold market is seeing its worst weekly performance in roughly a year. And the price action might not get much better next week as sentiment has dropped among Wall Street analysts and retail investors, according to the latest Kitco News Weekly Gold Survey.

Not only are gold prices ending the week with a 3.7% loss, but this is the fourth consecutive week of losses. The gold market has been hit with significant selling pressure as the U.S. dollar traded near its highest level in 20 years. Although some analysts have said that gold appears to be oversold, it still faces some challenging headwinds.

"As the old saying goes, markets can stay overbought and oversold longer than most of us can stay solvent," said Darin Newsom, president of Darin Newsom analytics. "Additionally, Newsom's Rule #6 tells us 'fundamentals win in the end,' and the U.S. dollar's fundamentals remain bullish."

Marc Chandler, managing director at Bannockburn Global Forex, also noted that momentum indicators look a slight stretch. Still, he doesn't see momentum shifting in the near term. He added that he could see gold prices fall to $1,780 an ounce next week.

"Rising rates keep gold on the defensive, despite the firm inflation readings," he said.

This week 17 Wall Street analysts participated in Kitco News' gold survey. Among the participants, two analysts, or 12%, called for gold prices to rise next week. At the same time, 12 analysts, or 71%, were bearish on gold in the near term, and three analysts, or 18%, were neutral on prices.

Meanwhile, 932 votes were cast in online Main Street polls. Of these, 481 respondents, or 51%, looked for gold to rise next week. Another 286, or 31%, said lower, while 165 voters, or 18%, were neutral in the near term.

Although retail investors remain bullish on gold in the near-term, sentiment had dropped sharply from last week when 61% were bullish.

Along with the rise in the U.S. dollar, many analysts said that rising bond yields will also weigh on the precious metal.

Chris Vecchio, senior market analyst at DailyFX.com, said that real bond yields have pushed to pre-pandemic levels, and the uptrend is just getting started.

This week, the U.S. Consumer Price Index showed annual inflation rising 8.3% in April, down from 8.5% in March. Although inflation was slightly higher than expected, Vecchio said that there are signs that inflation has peaked.

"Inflation will remain high, forcing the Federal Reserve to continue aggressively raising interest rates. Ultimately, real interest rates will go higher, which is bad news for gold," he said. "I think it's only a matter of time before gold is trading comfortably below $1,800 an ounce. I expect that by year-end, gold prices could be below $1,700."

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