(Kitco News) – Economic data and U.S. dollar movements will continue to influence the gold market next week, but market watchers said they wouldn’t be surprised if the yellow metal remains within its established range.
August gold futures fell Friday, settling at $1,383 an ounce on the Comex division of the New York Mercantile Exchange, down 0.72% on the week. July silver slipped Friday, settling at $21.743 an ounce, down 2.25 % on the week.
In the Kitco News Gold Survey, out of 36 participants, 22 responded this week. Of those 22 participants, nine see prices up, while seven 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.
Many market watchers in the gold market were hoping Friday’s U.S. Labor Department nonfarm payrolls report would be the catalyst to finally push gold out of its narrow $1,350 to $1,425 range. However, the U.S. monthly jobs data was in line with expectations and didn’t change anyone’s view.
The Labor Department said the U.S. created 175,000 jobs in May and the unemployment rate rose by a basis point to 7.6% as more people started to look for work. The expectation was that anywhere from 167,000 to 172,000 jobs were created. The April jobs figure was lowered to 149,000 from 165,000, and March’s figure was revised up to 142,000 from 138,000.
Gold bounced around above $1,400 ahead of the report and just afterward, but when the U.S. dollar rose, gold slipped below $1,400 and downside momentum grew as the dollar rose.
Market watchers said Friday’s reaction was more a readjustment after prices rose on ideas this figure would come out worse than expected following a weaker data release Wednesday from private payrolls processing firm ADP.
“We had people who came in long gold because of that ADP number, thinking it was going to rally and it didn’t. So you saw them selling here late, getting out ahead of the weekend. This market just feels heavy. Problem is, we can rally to $1,450 and we’re still in a bear market,” said one New York-based floor trader.
Robin Bhar, head of metals research at Societe Generale, said the data shows the pace of hiring continues which gives credence back to the Fed tapering its stimulus program toward the end of the year. “That’s bearish gold because gold as a monetary asset is affected by QE (quantitative easing),” he said.
The debate over Fed tapering will continue for at least another month or two, which means financial markets, gold included, “will be held hostage to data flow and every comment out of Fed officials. The markets are hanging on every single word and the tone of comments from Fed officials,” Bhar said.
That could mean volatile price action, but still in a range until more clarity emerges on the health of the U.S. economy, he said.
The next meeting of the Federal Open Market Committee is June 18 and 19 and financial markets in general will await the outcome of the monetary policy meeting, particularly any comments regarding the Fed’s bond-buying program.
Analysts at Brown Brothers Harriman said whether the Fed tapers in the third or fourth quarters or even waits until the first quarter of 2014, stimulus reductions are coming and the markets need to get ready for it.
“More investors are coming around to the view that the interest rate cycle is over. The importance of US rates in the global capital market should not be under-estimated. Higher U.S. rates drives up global rates, in general,” they said.
Higher interest rates as a rule are negative for gold prices since it underscores the opportunity cost of holding gold as it does not pay a yield. While BBH said tapering should be expected, that doesn’t mean the Fed is going to switch from easing to hiking rates.
Key U.S. economic data slated for release next week include May U.S. retail sales on Thursday and May U.S. industrial production on June 14. Analysts said the market will watch to see if the split between consumer sentiment and business activity continues.
Chinese data is also going to be important. On Saturday Chinese import/export data, inflation reports, industrial production and retail sales news are set for release. However, China is closed from Monday to Wednesday for the Dragon Boat Festival, so their markets will have a delay in reacting to the news. Some market participants are concerned the Chinese data will show further evidence of a weakening economy. Chinese equity markets are near one-month lows.
Howard Wen, analyst, HSBC Securities, said physical demand from China and India has supported gold prices recently. However, with Chinese markets will be closed until Wednesday and Indian consumers face more difficulties as the government and the Reserve Bank of India try to curb demand through increased duties and import bans, it could lead to price volatility. Prices could test mid-level support between $1,350 and $1,340, he added.
“In the near-term gold is going to be volatile because physical demand won’t support prices,” he said. “There is more downside risk over the next few days.”
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Neils Christensen contributed to this article.
By Debbie Carlson