(Kitco News) – The golden market is ending its second week of positive gains, and while sentiment remains solidly bullish among Wall Street analysts and retail investors, there are some concerns that rising interest rates could cap precious metal prices in the near term.
According to many analysts, the biggest factor driving golden‘s new bullish momentum is the weakness in the US dollar. The US dollar remains relatively elevated; however, it has dropped 3% from its highs at the start of the month.
Analysts note that the US dollar is losing ground to the euro as the European Central Bank signaled that it could start raising interest rates in July.
“With the inflation outlook having shifted notably upwards compared with the pre-pandemic period, it is appropriate for nominal variables to adjust – and that includes interest rates,” said ECB President Christine Lagarde in a commentary posted Monday.
“It looks like the US Dollar has peaked, for now, removing a key headwind from gold which has already started to rebound,” said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, “There is a lot of data coming out in the coming week, so currency markets could be active.”
Adam Button, Chief Currency Strategist at Forexlive.com, said that he is also bullish on gold as bond yields and the US dollar weaken.
This week 17 Wall Street analysts participated in Kitco News’ golden survey. Among the participants, 11 analysts, or 65%, called for gold prices to rise next week. At the same time, two analysts, or 12%, were bearish on gold in the near term, and four analysts, or 23%, were neutral on prices.
Meanwhile, 570 votes were cast in online Main Street polls. Of these, 317 respondents, or 56%, looked for gold to rise next week. Another 163, or 29%, said lower, while 90 voters, or 16%, were neutral in the near term.
The bullish sentiment comes as gold prices have hit resistance at $1,850 an ounce, up roughly 0.5% on the week.
Gold’s weekly gains come as the latest inflation data shows that consumer prices could have peaked. The US Department of Commerce said on Friday that its core Personal Consumption Expenditures Index, the Federal Reserve’s preferred inflation measure, saw an annual rise of 4.9%, down from March’s 5.2% increase.
However, some analysts have said that even if inflation has peaked, it won’t be going down quickly. At the same time, while the Federal Reserve will continue to raise interest rates, it won’t be able to get in front of the inflation curve.
Bob Haberkorn, Senior Market strategist at RJO Futures, said that any drop in gold should be seen as a buying opportunity in the current environment. He added that gold still has a path to $2,000 an ounce per year-end as real interest rates remain low.
“Inflation is still going to be a problem, and it is creating some real demand destruction, and that is weighing on the economy,” he said. “The Fed won’t be able to completely address the inflation threat because of nervous equity markets.”
Sean Lusk, Co-Director of Commercial Hedging with Walsh Trading, said that he also expects inflation to remain an issue as energy prices continue to rise. He added that the growing inflation threat and rising recession fears will make gold an attractive safe-haven asset.
Adrian Day, President of Adrian Day Asset Management, said that he remains bullish on gold as the Federal Reserve is close to testing the limits of its monetary policies.
“There is a battle between belief in the Federal Reserve and other central banks’ ability to tame inflation without causing a recession on the one hand, and the armies of reality on the other continue,” he said. “Reality will ultimately win and is now gaining ground.”
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