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Gold rally looks exhausted as it sees sixth consecutive weekly win

Welcome to Kitco News’ 2023 Outlook Series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into a recession to cool down inflation. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2023.

(Kitco News) – The new year is proving to be a solid start for the gold market as prices end the week near a nine-month high.

The gold market has rallied for five-straight weeks as prices are up more than 5% in the first month of 2023. And while there is strong bullish sentiment in the marketplace because, there is still one piece of the market missing.

Investors are still not jumping into the market, causing some analysts to question how sustainable this new rally is. While gold prices have rallied 5% this year, data from the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares (NYSE: GLD), shows that ETF demand continues to fall.

As of Jan. 19, GLD’s gold holdings have dropped 5.21 tonnes. The question is: does the price follow broader investment demand, or will ETF purchases pick up to reflect the bullish sentiment in the marketplace? The outflows in the ETF market have slowed, but they haven’t ended.

At the same time, there are concerns that silver is not seeing the same bullish sentiment as gold. After outperforming gold through November and December, silver appears to be treading water at around $24 an ounce.

Silver‘s lack of momentum is also a stark contrast to what is happening in other industrial metals like copper, which is trading at a seven-month high of around $4.26 a pound.

It will take some time for these market divergences to work themselves. Still, there are reasons to be hopeful that investors will eventually see the value in holding precious metals.

This week Bank of America published a very bullish report on gold; the analysts said that they expect the precious metal to be a mainstay asset for the next three years.

And Bank of America is not alone in its bullish outlook. In November, European fund manager HANetf surveyed 100 European and British wealth fund managers. According to the results, 89% of those respondents said they intended to increase their exposure to gold.

“It now may be the case that a lot of the negative sentiment towards gold has passed,” said Tom Bailey, head of ETF research at HANetf, in the report.

As to what is driving sentiment in precious metals, the biggest factor continues to be weakness in the U.S. dollar; the U.S. dollar index has fallen more than 10% since its 20-year high in September.

According to analysts, the U.S. dollar is losing momentum as markets expect the Federal Reserve to slow its aggressive tightening cycle. Markets have all but completely priced a 25 basis point move from the U.S. central bank next month.

In an exclusive interview with Kitco News, esteemed economist David Rosenberg said that he expects the February meeting to be the Federal Reserve’s last hike. He added that the impending recession will force the central bank to start cutting interest rates sometime in the second half of the year.

In this environment, he expects gold to be an attractive asset and sees prices rallying to new record highs above $2,000 an ounce this year.

The gold market has managed to eke out another gain for the week for the sixth consecutive time; however, sentiment, specifically among Wall Street analysts, has turned bearish as they would like to see some consolidation before taking a run to $2,000 an ounce.

The Kitco News Weekly Gold Survey shows that Main Street investors remain significantly bullish on gold. This would make the first divergence for 2023 between the two survey groups.

Although most analysts remain long-term gold bulls, many have said that next week’s Federal Reserve monetary policy decision is creating a lot of risk in the marketplace, and investors might want to lock in some profits at current levels. For investors looking to get in, the advice across the board has been not to chase the market at current prices.

Colin Cieszynski, chief market strategist SIA Wealth Management, said he is neutral on gold next week as it’s unclear what the Federal Reserve will do. He noted that Friday’s inflation data shows the Personal Consumption Expenditures Index, excluding food and energy prices, rose 4.4% in December.

He pointed out that this is the first inflation indicator that has dropped below the Fed Funds rate. He added that it’s unclear if this data point will be enough to convince the central bank that it has inflation under control.

There is a risk that the Federal Reserve will raise interest rates by 25 basis points next week but strikes a hawkish tone, which could support the U.S. dollar and weigh on gold. Cieszynski said the U.S. dollar will be the key to gold’s direction next week.

“The primary driver for gold has been the rollover in the U.S. dollar,” he said. “There is a risk that after its selloff, the U.S. dollar finds some support next week. Gold has had a great run and I expect prices to go higher this year, but it is due to consolidate.”

This week, 19 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, ten analysts, or 53%, were bearish on gold in the near term. At the same time, three analysts, or 16%, were bullish for next week and six analysts, or 32%, saw prices trading sideways.

Meanwhile, 1,127 votes were cast in online polls. Of these, 723 respondents, or 64%, looked for gold to rise next week. Another 251, or 22%, said it would be lower, while 153 voters, or 14%, were neutral in the near term.

Not only is bullish sentiment among retail investors holding at elevated levels, but participation in this week’s survey hit its highest level since early December, indicating that investors are starting to pay attention to gold again.

Mark Leibovit, publisher of the VR Metals/Resource Letter, one of the three bullish analysts in this week’s survey, said he is not ready to give up on gold’s momentum.

This week the gold market briefly entered into a technical bull market as prices rallied 20% from their November two-year lows. February gold futures last traded at $1,929.60 an ounce, roughly unchanged from the previous week.

“Though technically stretched, I would rather give the uptrend the benefit of the doubt,” he said.

Most analysts are expecting gold prices to see some renewed selling pressure as markets might be underestimating the Federal Reserve’s hawkish stance. Currently, markets are pricing in a 25-basis point move next week and see one more rate hike in March to end the current tightening cycle. At the same time, markets started to price in a rate cut as early as September.

However, Adam Button, chief market strategist at, said that gold’s exhaustion could be a sign that some investors don’t think the Fed is ready to signal a pause.

“If anything, they will be more hawkish than the market expects, so I’m cautious on gold for the first time in months,” he said.

Adrian Day, president of Adrian Day Asset Management, said he also thinks the gold market is vulnerable in the near term as a potential slowdown from the U.S. central bank could disappoint.

However, he added that he would buy gold on the pullback.

With so much bullish sentiment in the marketplace, many analysts think it’s only a matter of time before investors jump back into gold.

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.

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