Gold flat and strong Bullish sentiment in gold this week

Gold prices held steady on Monday after cutting gains in the prior session on U.S. Federal Reserve chief Jerome Powell’s comment that inflation could ease next year and the central bank was on track to start tapering its stimulus.

Spot gold rose 0.15% to 1796.71 per ounce by 11:50(GMT+8).

The metal rallied to its highest since early September on Friday before trimming gains on Fed Chairman Jerome Powell’s comments on tapering.

Powell said it was not time for the Fed to raise interest rates, especially given employment was still low.

Gold is often considered an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, translating into a higher opportunity cost for holding bullion which pays no interest.

Treasury Secretary Janet Yellen said on Sunday the United States was not losing control of inflation, and inflation could return to normal by the second half of next year.

Furthering pressuring gold, the dollar steadied after its steepest weekly loss in more than a month. A stronger dollar makes bullion less appealing to buyers holding other currencies.

Speculators cut their net long positions in gold in the week to Oct. 19, U.S. Commodity Futures Trading Commission data released on Friday showed.

Market participants now eye the Bank of Japan and the European Central Bank (ECB) meeting on Thursday. Neither of the two central banks are expected to change policy but market indicators suggested higher inflation than the ECB’s guidance.

Strong Bullish sentiment in gold as Powell talks down inflation threat

The rising inflation threat is creating some significant bullish sentiment in the gold market, even as Federal Reserve Chair Jerome Powell tries to talk down those growing concerns

Early Friday, gold prices rose to a six-week high, pushing above $1,800 an ounce; however, most of those gains proved to be short-lived after Powell reiterated his stance that the U.S. central bank is on track to start reducing its monthly bond purchase. He added that he expects the tapering to be completed by mid-2022.

He noted that although there is a growing risk that supply-chain issues could keep inflation pressures elevated through 2022; however, he added that his base case is for the supply bottlenecks to be resolved and for inflation to push back to 2%.

Before Powell's comments, analysts were significantly bullish on gold with many looking for prices to test major resistance at $1,830 an ounce.

This week 15 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 13 or 87%, called for gold prices to rise. At the same time, two analysts, or 13%, were neutral on gold in the near term. No analysts were bearish on gold.

Meanwhile, A total of 598 votes were cast in online Main Street polls. Of these, 360 respondents, or 60%, looked for gold to rise next week. Another 134, or 22%, said lower, while 104 voters, or 17%, were neutral.

Photo: KITCO

Although the precious metal is down from its session highs, it is still on track to end its second week with gains. December gold futures last traded at $1,797.30 an ounce, up 1.63% from last week.

Although some analysts are bullish on gold, they don't see the market attracting major capital until resistance at $1,835 is broken.

"With gold's push back above $1,800 you have to be bullish on gold," said Ole Hansen. "But I also reserve the right to be disappointed given gold's lackluster performance so far this year."

Hansen added that a break above $1,835 could create enough momentum in the market to push prices back to $2,000 an ounce.

David Madden, market analyst at Equiti Capital, said that Friday's initial rally in gold pushed prices above a critical downtrend from last year's record highs. He said that he sees gold pushing back to $1,830 but doesn't expect that level to break.

He noted that the U.S. dollar. Which has been in a strong uptrend since May has been a significant headwind for gold. He added that he doesn't expect that trend to change anytime soon.

"The Federal Reserve is keen to tighten interest rates and that will support the U.S. dollar," he said.

Colin Cieszynski, chief market strategist at SIA Wealth Management said that he is bullish on gold as inflation rises.

"We may see central bankers start to walk back their previous "transitory inflation" statements and start to reduce stimulus. Although winding down the paper printing party is a positive for paper money, that could take several months, so I think gold can still benefit in the short term," he said.

Darin Newsom, president of Darin Newsom Analytics, said that he could see higher gold prices next week; however, he added that a lot depends on the U.S. dollar and if support at 93.50 in the U.S. dollar index will hold.

"The US dollar index looks to be approaching a possible short-term bullish turn as it tests support at this week's low of 93.50. If this holds and the dollar rallies, gold could put an early top in next week," he said.