(Kitco News) – Gold traders next week will look ahead to Chinese data for evidence of a further slowdown in economic activity and traders are hoping for more clarity on the Federal Reserve’s plan for ending its bond-buying program.
Gold prices ended the week on a strong note, although they were down Friday. August gold futures fell Friday, settling at $1,277.60 an ounce on the Comex division of the New York Mercantile Exchange, up 5.4% on the week. September silver fell Friday, settling at $19.792 an ounce, but rose 5.6% on the week.
In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 12 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.
Profit taking after strong gains this week for gold weighed on prices Friday as the U.S. dollar rebounded from Thursday’s weakness. Strength in the dollar has pressured gold as the traditional relationship between the two resumes. Because gold is dollar-denominated, a stronger greenback usually means weaker gold, and vice versa.
Market watchers said they are looking ahead to two events: the release of Chinese economic data this weekend and testimony from Federal Reserve Chairman Ben Bernanke in front of Congress next week.
The Chinese economic data set for release include second-quarter gross domestic product, June retail sales and industrial production. A few market watchers said that they expect China’s GDP growth to slow further in the second quarter based on tighter monetary policy, citing comments overnight from Chinese Finance Minister Lou Jiwei. He suggested that 2013 growth may be as low as 6.5%, falling short of the official government target set in March of 7.5%.
Bernanke will address members of the U.S. House of Representatives and Senate on Wednesday and Thursday, as part of the Fed’ semi-annual report regarding policy. Analysts said his comments will be closely watched, particularly after this week’s release of the June Federal Open Market Committee meeting minutes and Bernanke’s comments suggesting “highly accommodative monetary policy for the foreseeable future” during a separate speech.
Gold and other markets rallied on Bernanke’s words and the U.S. dollar fell, changing some traders’ views that the tapering of the bond-buying by the Fed could come as soon as the September FOMC meeting. Some market watchers said Bernanke’s comments, in contrast to what he said after the June FOMC meeting, and the meeting minutes may have injected a little more confusion into the markets about what the Fed plans to do.
Analysts at BNP Paribas said to keep in mind when Bernanke testifies in front of Congress he will represent the FOMC, rather than giving his own views. That might mean he will sound less dovish than he did earlier this week and his comments may err on the side of tapering, they said. If that’s the case, the U.S. dollar might rebound, which would reassert pressure on gold.
Barclays analysts said Bernanke’s comments were dovish, but that “we see them as consistent with our view that the Fed will reduce the pace of purchases at its September meeting from $85 billion per month to $70 billion… We interpret many of the chairman’s dovish statements as an attempt to prevent markets from pricing in an earlier onset of policy rate tightening, not about whether the committee expects tapering later this year.”
Adrian Day, president and chief executive officer, said gold traders are reassessing the knee-jerk reaction to the Fed’s plans. He said he expects gold to rise next week, albeit cautiously.
The selloff that took gold under $1,300 “is overdone based on (the notion that the) Fed cutting back stimulus. All the Fed is discussing at present is reducing the additional stimulus… This is not reducing anything, far less a grand exit. As the market realizes this, gold will recover, unevenly perhaps, but the trend is up,” he said.
While Day forecast higher prices, a number of market watchers said after such a strong rally this week, gold prices could pull back and consolidate in a range. Several said they expect gold could find support around the $1,265 to $1,270 area, with resistance at the $1,305 area.
“Much will depend on the nature of the Chinese macro numbers out this weekend. If the numbers turn out to be particularly poor, there is talk that the government may announce a lowering of reserve requirements or a targeted stimulus program, in which case gold prices could continue pushing higher. However, if the numbers are weak and are not accompanied by any kind of government relief, prices could start to work lower over the early part of next week. For now, we would rather be on the sidelines and watch where things settle in light of these key macro announcements,” said Edward Meir, commodities consultant at INTL FCStone.
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By Debbie Carlson firstname.lastname@example.org