In contrast to a new breakout, bullish sentiment suggests a limited short squeeze for gold prices


Sentiment in the gold market has improved as the precious metal has managed to hold critical support above $1,700 even as the U.S. dollar rallied to a new 20-year high.

Although gold has room to go higher next week, analysts have said that investors shouldn’t expect to see any significant breakout as the Federal Reserve will continue to raise interest rates aggressively. Markets currently see an 88% chance that the U.S. central bank will raise the Fed Funds rate by another 75 basis points on Sept. 21.

“Weaker economic data next week could pressure the U.S. dollar and push gold prices higher, but the data won’t stop the Fed from raising rates, and that will ultimately support bond yields and the U.S. dollar,” said Sean Lusk, co-director of commercial hedging with Walsh Trading. “Gold could get to $1,760 next week, but it won’t change the fact that it remains stuck.”

Marc Chandler, managing director at Bannockburn Global Forex, said that he sees any rally in gold as a short-term correction in the current downtrend.

“I want to sell into what I expect to be a little more of a bounce in gold,” he said. “I am looking at a soft headline CPI and for the market to have second thoughts about a 75 bp hike from the Fed later this month. However, this may be a bit of a head fake because headline inflation will still be elevated, and the core rate may tick up. I think the upticks are corrective and not the beginning of a new uptrend. “

This week, a total of 16 market professionals took part in Kitco News’ Wall Street survey. Nine analysts, or 56%, said they were bullish on gold next week. Two analysts, or 13%, said they were bearish. Five analysts, or 31%, said they were neutral on the precious metal.

On the retail side, 495 respondents took part in online polls. 255 voters, or 52%, called for gold to rise. Another 153, or 31%, predicted gold would fall. While the remaining 87 voters, or 18%, called for a sideways market.

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