Gold up, dollar down this week, CNBC polls predict - Wealth Managers

BofA Merrill Lynch, Morgan Stanley both see November rally in the making

With the gold price most often moving in the opposite direction of the U.S. dollar, two new CNBC polls suggest that this week might be a glittering one for the yellow metal.

Its poll of gold-market sentiment showed 52%(12 out of 23) respondents expect prices will rise this week, while 39% predict declines, and 9% are neutral. CNBC also cited IG Markets' latest positioning data, which show that of the more than 500 clients with open positions, 67% expect prices to rise, while the remaining 33% expect declines.

And according to CNBC's latest market survey of currency experts, damage from the U.S. government shutdown will keep the dollar under pressure this week, as well as force theFederal Reserve to delay the withdrawal of stimulus until next year. Nearly 89% (24 out of 27) of respondents believe the dollar will slide this week, while just 7% (2 out of 27) say the dollar will gain. "The bullish dollar story has been shunted into 2014," said Simon Grose-Hodge, head of investment advisory at LGT Bank in Singapore. "The dollar certainly looks vulnerable on the Fed outlook."
India's festival season usually drives gold
India's festival season is another big reason to be bullish on gold, say analysts at BofA Merrill Lynch and Morgan Stanley, saying the metal is poised for a November rally. In a note to clients today, BAML analysts led by Michael Jalonenwrote:
"Looking ahead, history would indicate that November is usually a strong month (with an average monthly gain of 3.8% in November) for gold prices thanks to the wedding and festival season in India. Thus we believe that bullion could mount a modest rally to the $1,350-$1,400/oz range over the next month or so."

Morgan Stanley analyst Paretosh Misra agreed:
"Indian festival season could provide a lift to gold. Traditionally, the Diwali festival (specifically, Dhanteras, the two days before Diwali) is the biggest gold buying period of the year in India. In the last 10 years, gold has risen an average 2.5% in the one month around Diwali. While government's new import restrictions and [rupee] depreciation could adversely affect gold imports, buying should be supported by ~20% YoY decline in gold in rupee terms." 

"Dismal sentiment" always a good sign
A couple of other analysts also recently weighed in. Pater Tenebrarum of Acting Man blog finds that overwhelming negative sentiment among the general public is always a good sign, from a contrarian standpoint:
"Considering how absolutely dismal sentiment on gold is, considering the many similarities to the 2008 'retest' that could be observed recently (back then, gold was also declared 'dead' by the mainstream) and given the fact that for a change, the gold market has not acted in the way that was widely expected, it continues to make sense to look for more signs of a trend change to emerge. Ideally declines should continue to be kept in check by support at $1,275, while any rally that manages to exceed the $1,350 level on a closing basis and confirmed by the gold stock indexes can probably be interpreted as a sign that the short to medium term trend has finally reversed for good."
Gold "horribly mispriced"
And in an interview with Chris Martenson's Peak Prosperity, gold expert Alistair Macleod finds the metal extremely undervalued, especially when comparing prices with the pre-Lehman Bros. collapse period:
"If I adjust the price of gold from just before Lehman Bros. went under, I think I'm right in saying that in July 2008, the price of gold at the close of that month was $918/ounce.

"Now, if you adjust that price by the extra fiat money quantity that is now in circulation, gold has actually gone down, in real terms if you like, by about 30%. Put another way, if the price of gold was to match in real terms that $918 level, it would today be about $1,860. So we have this extraordinary thing where gold, for whatever reason, has become extremely undervalued compared to where it was before Lehman Bros. went under. Now this is important, because before Lehman Bros. went under, not many people actually understood systemic risk. So the price of gold did not really include the weighting for systemic risk. ...

"There is a substantial hyperinflation risk that is going to affect prices somewhere down the line. And yet, gold is trading at a discount of 30% to where it was before all of this happened, so it is horribly mispriced."

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