Analysts Mixed As to What Impact Greece, China, U.S. Data Will Have On Gold

By Paul Ploumis 13 Jul 2015 Last updated at 04:10:19 GMT

(Kitco News) - Global market tensions are expected to relax next week with Greece expected to find some resolution to its ongoing credit crisis and Chinese leaders expected to keep a tight grip on equity markets to prevent another major market selloff.

However, commodity analysts are mixed as to what impact lower geopolitical tensions will have on the gold and silver market. Comex August gold futures ended their third consecutive week in negative territory, trading at $1,161.70 an ounce as of 3:58 p.m. EDT, down 1 % on the week. Gold’s selloff had been worse as broad commodity selling Tuesday pushed the yellow metal to its lowest point since mid-March.

Comex September silver futures also managed to regain some important territory after dropping more than 7% early in the week; the precious metal last traded at $15.535 an ounce. However, renewed buying was unable to stop the overall downtrend as the market lost 1% for its third consecutive weekly close.

Despite the negative weekly close, optimism is creeping back into the gold market. After five consecutive weekly bearish outlooks, retail investors have finally turned bullish, while market professionals remain mixed, according to the Kitco News Wall Street vs Main Street Weekly Gold Survey.

This week, 538 people participated in Kitco News’ online survey. Of those, 289 participants, or 54%, expect to see higher gold prices next week; 200 participants, or 37%, see lower gold prices; and 49 people, or 9%, are neutral.

In the professional market survey, out of 33 market experts contacted, 20 responded. Eight, or 40%, said they are bullish on gold next week. At the same time, seven professionals, or 35%, said they are bearish, and five people, or 25%, are neutral on gold. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the annual In Gold We Trust report, with its ninth edition published late-June, said that he is bullish on gold and silver as the market showed some intra-day strength during this week’s selloff.

He added that the capitulation seen early in the week could be a signal that prices are carving out a bottom.

“As I said in our report, we can’t rule out another test of the lows at $1,140; the downtrend from 2010 has not been broken but from a technical perspective the market does look a little oversold and I would expect to see some buying next week,” he said.

Stoeferle added that he will continue to monitor Chinese equity markets as a continued selloff is deflationary, which would be negative for gold and could be the catalyst for another leg down in the precious-metals markets.

However, many analysts are not expecting the Chinese government to loosen the price controls it instituted earlier in the week to stop the dive seen in equities, which triggered the broad-based commodity selloff. Before the price controls, Chinese equities dropped 30% from mid-June.

George Gero, precious-metals strategist with RBC Capital Markets Global Futures, said the price controls are only a short-term solution but it could lead to Chinese investors buying stocks again and a stabilized equity market could end up being positive for the gold market.

But, he added, gold will struggle in the long term as it is now off most investor’s radar.

“Investors don’t want to be a buyer or seller of gold until they get a clear signal and know what is happening with the Federal Reserve. The uncertainty in Greece and China is creating a lot of uncertainty and fear because nobody knows what the Fed is going to do.”

Jessica Fung, commodity analyst from BMO Capital Markets, agreed that China will be an important factor for gold next week. She added that the selling in equity markets isn’t finished yet.

“A 30% drop isn’t much when you look at the 150% rally we saw since last year. This is not the end,” she said.

Fung also added that investors should still pay attention to the U.S. dollar. Any weakness in the U.S. dollar could create some limited buying pressure in gold; however, any renewed buying won’t change the current neutral outlook.

“I think we could see gold move up five or six bucks on a weaker U.S. dollar but that is really nothing,” she said. “It just feels like we have a lot of investors sitting on the sidelines who don’t really know what is happening in commodity markets.”

While global markets will garner a lot of attention next week, investors also need to keep an eye on U.S. markets as next week will be a big week for economic data. Markets will receive retail sales data for June, regional manufacturing data for July, and consumer inflation data at the end of the week. However, the highlight will be Fed Chair Janet Yellen’s semi-annual testimony before Congress. She will testify before the house Financial Services Committee Wednesday and the Senate Banking Committee on Thursday.

Market participants are expected to go through her testimony with a fine-toothed comb trying to find any hints on when the central bank will pull the trigger on an interest rate hike.

Friday, Yellen said, in a speech at an event in Cleveland, that she still expects interest rates to rise later this year but also acknowledged factors that continue to hold back the U.S. economy, including potential foreign threats.

With the U.S. central bank still expected to raise interest rates, Chis Beauchamp, senior market analyst at IG, said that he expects the U.S. dollar and Treasuries to be the safe-haven investment of choice, which will limit gold’s appeal.

“Right now the U.S. is the only game in town and I think that is what will benefit next week,” he said.

Courtesy: Kitco News