Gold price direction next week is likely to be influence by the strength of the U.S. dollar, along with U.S. economic data on manufacturing, retail sales and inflation.
June gold futures fell Friday, settling at $1,436.60 an ounce on the Comex division of the New York Mercantile Exchange, down 1.89% on the week. July silver slipped Friday, settling at $23.658 an ounce, down 1.48% on the week.
In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, eight see prices up, while 11 see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
After consolidating in a rather narrow range this week, gold prices slid on Friday, pressured by selling ahead of the weekend and a stronger U.S. dollar.
Robin Bhar, head of metals research at Societe Generale, said he was surprised to see gold sell-off this week, saying he had expected gold to hold in a broader $1,450 to $1,550 range. “Even though I’m bearish on gold, I thought it would hold up better,” he said.
He said part of what might have tipped gold to test the lower half of the $1,400 region is that earlier in the week the metal was unable to break above technical chart resistance at $1,480 to $1,490, along with some drying up of voracious physical demand when prices reached the higher levels. Strong equities continue to pull buyers of commodities in general, too.
“If you’re holding gold for insurance purposes, it’s one thing, but if you’re holding gold as an investment, it’s an opportunity cost because other markets are doing better, particularly equities,” Bhar said.
Market participants in general are looking ahead to next week’s U.S. economic data as several key reports are slated for release. These reports include retail sales, the Empire State Index and the Philadelphia Fed Index, both which are manufacturing reports, and inflation data. Financial analysts said the data will influence the short-term direction of the dollar and anything under expectations will likely cause the greenback to slip. The dollar drew attention this week when on Thursday is broke above JPY100 for the first time in four years.
These economic reports next week will be important for gold, too. If on balance they come out better than anticipated, that will be negative for gold prices, while if the data comes out lower than expected, it would support gold prices. The reason, Bhar said, is that the debate of what the Federal Reserve with do with its quantitative easing program continues.
“This debate is not going to be settled next week or next month,” he said.
Because of the continued ultra-loose monetary policy by the Fed, the European Central Bank and the stepped-up stimulus from the Bank of Japan, Bhar said it’s likely that gold will find support at these lower levels, with the $1,380 to $1,420 range likely to encourage buyers.
Adam Klopfeinstein, market strategist with Archer Financial Services, echoed what several market watchers have said about negative sentiment toward gold in the short term.
“There’s no inflation out there. The stock market is up; you can debate whether it should or shouldn’t be up, but it is…. There’s no reason for flight to quality. The only thing the gold might have going for it is currency wars, but the dollar is up,” he said, saying prices could fall to $1,380.
After weeks of outflows, gold-backed exchange-traded funds registered their first day of inflows since the end of March. According to data from Bloomberg, Thursday saw the first significant influx of funds into the gold-backed ETFs at 2.5 metric tons.
George Gero, vice president with RBC Capital Markets Global Futures and a precious metals strategist, said he’ll watch to see what buying interest if any emerges from ETF investors next week, but added it’s too early to say the selling trend is done. “We’ll see if the lowest prices in gold in two years brings any buyers,” he said.
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