Sentiment in gold improves as wage inflation picks up
(Kitco News) - Rising inflationpressures and central banks that are in no hurry to raise interest rates areboosting sentiment in the gold market as prices look to end the week above$1,800 an ounce.
Although analysts seeroom for gold prices to move higher, a few still note that the market facessignificant overhead resistance. For gold to regain its luster and attract newmomentum, prices have to ultimately push above $1,835 an ounce, according to someanalysts.
This week 18 Wall Streetanalysts participated in Kitco News' gold survey. Among the participants, tenanalysts, or 56%, called for gold prices to rise nextweek. At the same time, two analysts, or 11%, were bearish on gold in the nearterm, and six analysts or 33% were neutral on prices.
Meanwhile, A total of 622votes 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 108voters, or 17%, were neutral.
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Bullish Bearish Neutral The bullish sentimentcomes as gold prices look to end the week with solid gains above $1,800 anounce. This is the first time gold has managed to end the week above $1,800since late September. December gold futures last traded at $1,810.60 an ounce,up 1.5% on the day.
The rally in gold alsocomes the same day the U.S. government reported stronger than expectedemployment 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 tosome analysts, despite the strong headline number, gold investors focused onrising wage inflation. The report said that wages have increased by 4.9% in thelast 12 months.
"We've been waitingfor the inflation theme to start playing out in the gold market and it lookslike this could be the start," said Ole Hansen, head of commodity strategyat Saxo Bank. "If inflation does start to pick up and central banks arebehind the curve, then you will want to have a few gold coins in yourpockets."
However, although Hansenis bullish on gold in the near term, he added that $1,835 remains the criticallevel gold needs to break.
Phillip Streible, chiefmarket strategist at Blue Line Futures, said that he is also watching $1,835 anounce. 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 startto move."
Not only are inflationpressures rising, but the Federal Reserve and other central banks continue todownplay the growing threat. While the U.S. central bank said this week that itis reducing its monthly bond purchases, Federal Reserve Chair Jerome Powellsaid that this is not the right time to raise interest rates.
Following the Fed'smonetary policy decision, the Bank of England defied expectations and leftinterest rates unchanged. Markets were looking for the BoE to raise interestrates.
Adrian Day, president ofAdrian 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 istoo little too late."
However, not all analystsare optimistic about the precious metal. Darin Newsom, president of DarinNewsom Analysis, said that gold prices need to push above $1,815 an ounce tobreak its current sideways pattern. However, he added that the U.S. dollar isattracting some bullish attention as the U.S. dollar index trades at a criticalresistance point at 93.50 points.
"If this holds andthe dollar rallies, gold could put an early top in next week," he said.
Marc Chandler, managingdirector at Bannockburn Global Forex, said that he is not convinced gold isready to break out. He added that next week's Consumer Price Index data couldend up driving interest rates higher along with the U.S. dollar, which wouldweigh on gold prices.
David Madden, marketanalyst 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 theFed's monetary policy meeting.
He said that a lot morepositive economic data is needed to create new momentum for the U.S. dollar.
"I wouldn't dream ofgoing short the U.S. dollar, but it might be topping out that that should bepositive for gold in the near term," he said.
By Neils ChristensenFor Kitco News
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