'Hesitant' Gold Market To Be Dominated By Month and Quarter End Flows

Author: Paul Ploumis
30 Mar 2015 Last updated at 05:00:04 GM

(Kitco News) - Gold is ending the Friday session down from recent highs and with both month and quarter ending next week, some analysts are expecting prices could trade lower in a “hesitant” marketplace and shortened trading week.

According to analysts, short-term traders appear to be ending the week by taking their profits after prices pushed to a four-week high on Thursday. Comex April gold futures ended Friday in modestly negative territory at $1,199.80 an ounce, down 0.42% on the day. However, despite Friday’s weaker session, gold futures ended its second straight week in positive territory, up 1.4% since Monday.

Silver futures are also off Thursday’s highs and settled Friday’s session at 17.069. However, the precious metal outperformed gold as it ended the week up 1.87%.

George Gero, vice president and precious-metals strategist for RBC Capital Markets Global Futures, said that this week’s drive to $1,219.50 an ounce created some volatility during options expiration Thursday. He added that a lot of options traders, who were in the money with $1,200, put options at the start of the week and had to abandon their contracts yesterday. Those investors will be hesitant to jump back into the market right away, he said.

“A lot of money in the options market disappeared because of Thursday’s rally,” he said.

Gero added that open interest Friday morning dropped by 17,000 contracts, and the lack of interest could cause gold prices to drift lower in the near-term.

“Funds right now are just trying to square their books for the quarter end,” he said.

Adam Button, currency analyst at Forexlive.com, agreed that the gold market looks hesitant but there could be more downside risk for the yellow metal as the U.S. dollar appears to be ending its short-term correction.

“The bounce we saw this week in gold faded pretty quickly so I don’t think that is a good sign for the market,” he said. “I think it is only going to take a little bit of good news for the U.S. dollar to rally again.”

Although gold could struggle in the face of a stronger U.S. dollar, Adrian Day, president and chief executive officer of Adrian Day Asset Management, warned investors to not underestimate gold’s safe-haven appeal, which could override U.S. dollar strength.

Saudi-coordinated military airstrikes in Yemen Wednesday and Thursday caused gold to rally on safe-haven flows and Day said that the market will be sensitive to any rise in geopolitical tensions.

“This isn’t getting the news that it should and if this becomes a focus again next week then I would expect gold to benefit,” he said.

Along with geopolitical issues, Day said that he expects gold prices to remain volatile next week as the market reacts to data in anticipation of potential Federal Reserve rate hikes. He adds markets continue to go back and forth between a June rate hike and a September rate hike or that any potential hikes may be pushed back even farther.

“There is a lack of action from the Fed. There is nothing for traders to really hang their hat on and that will keep gold traders hesitant,” he said.

“The Fed is waiting for the perfect moment but the longer they wait to make a decision the harder it will be for them.”

Julian Jessop, head of commodity research at Capital Economics said that a long with uncertainty in the Middle East, Greece’s negotiations could also create a safe-haven bid for gold next week.

The highlight for data next week will be Friday’s nonfarm payrolls; however, markets will be closed for Good Friday so reaction to the data will be delayed until Monday.

The market will not be without any March employment data. On Wednesday, private payrolls process ADP will release their data for March. Usually this report only gets a cursory glance from analysts and economists because it is not a reliable predictor of the official numbers.

However, Gero said that he expects the ADP employment report to get a lot more focus. He also added the data would have to be a lot worse than expected to change the current Fed narrative of eventual rate hikes.

“Even if employment is weaker than expected, the Fed is not going to base their decision on just one data point,” he said. “The economy is still strong enough that I think we could still get a ho-hum employment report.”

Courtesy: Kitco News