(Kitco News) – Two public holidays and several important economic reports next week could influence metals prices as the market welcomes the second half of 2013, putting behind one of the weakest performances in recent memory.
Gold and silver bulls in particular will be happy to see the first half of the year come to a close as those two markets are the worst-performing commodities, with silver taking the bottom spot and gold not far behind, according to data from Barchart.
August gold futures rose Friday, settling at $1,223.70 an ounce on the Comex division of the New York Mercantile Exchange, down 5.3% on the week. Gold prices are down 23% on the quarter and 27% on the year. September silver rose Friday, settling at $19.470 an ounce, down 2.7% on the week. Silver fell 31% on the quarter and 35% on the year.
In the Kitco News Gold Survey, out of 36 participants, 21 responded this week. Of those 21 participants, 11 see prices up, while eight see prices down and two see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Next week Canada is closed on Monday, and the U.S. is closed on Thursday.
The gold market was hit from several sides this week, weighing on prices. The combination of generally better-than-expected U.S. economic data and a stronger dollar, outflows from the major physically backed gold exchange-traded funds and subdued physical buying out of Asia contributed to the losses. Technical charts also flashed bearish sell signals as prices broke through several support levels, including at $1,225 and $1,200, basis the August futures contract. Analysts said the selling was exacerbated by this week being the end of the month, quarter and first half of the year. Fund managers likely sold losing positions to square their books because of the fiscal quarter end, several analysts said.
Commerzbank said the quarterly drop for gold was the heaviest quarterly loss since the end of Bretton Woods agreement in the early 1970s. Gold’s weakness pulled down neighboring silver and platinum group metals, although by the end of the week, gold’s sell off outpaced the losses in the other metals, which had some analysts saying quarter-end fund liquidation may have hit gold harder.
Because of the sharp weakness in gold and the timing of the calendar, a few market participants said gold may see a selling reprieve and that could allow it to bounce.
Ken Morrison, founder and editor of online newsletter Morrison on Markets, said he sees gold rebounding for the short-term.
“A number of signs favor the potential for a ‘bounce’ in gold soon. The 61.8% Fibonacci retracement is at $1,175 using the weekly closes of the November 2008 low and the end-August 2011, very close to the
overnight intraday low of $1,179. Bullish sentiment is also (at) an extreme low considering fund managers have aggressively reduced long exposure to gold as the quarter comes to a close…. Based on the potential head and shoulders-bottom pattern, we envision an intermediate counter-trend rally to around $1,400 over the next 30 days,” he said.
Not everyone is so positive that gold is going to rebound next week. Several said the momentum for gold is down and right now they see no reason to buy.
“Hmmm, let’s see, free-fall, waterfall, plunge. OK, the theme would be down. At some point the market will go up, but for now, nobody wants to be the first to buy,” said Darin Newsom, senior analyst, DTN.
There is a fair amount of economic news out next week that will keep traders on their toes. Given the concerns about the weakness in the Chinese economy, there will be a sharp focus on the results of China’s official Purchasing Managers Index data, out early next week. Also of interest will be Japan’s business Tankan survey. In the U.S., two reports will be closely watched, the Institute for Supply Management PMI and June payrolls data.
In addition to the data, the European Central Bank monetary policy committee meets next week. Analysts at BNP Paribas said a selloff in the euro could occur if the ECB makes mention of the single currency. They noted that unlike the Federal Reserve, which is hinting at ending stimulus, the ECB “continues to look at all potential policy options” which is potentially bearish for the euro in relation to the dollar. While additional monetary stimulus can be positive for gold, a stronger dollar can be bearish and dollar strength has so far held more sway over gold action.
Daniel Pavilonis, senior commodities broker with RJO Futures, said the markets will watch economic data closely, especially after the comments from the Federal Reserve about how economic reports will drive their thinking about the tapering the quantitative easing program. He said he expects a bounce for gold next week on the idea the market fell too far, too fast.
“Markets may take a pause next week,” he said. “If the data doesn’t come out so strongly, people might change their mind that QE tapering will happen so quickly.”
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By Debbie Carlson firstname.lastname@example.org