Gold Market Monitoring Greece, Dollar, But Remains Vulnerable —Analysts

Author: Paul Ploumis
08 Jun 2015 Last updated at 07:30:55 GMT
(Kitco News) - Gold prices tumbled to a lower close Friday, marking the third daily session in a row of losses. A report revealing strong U.S. job growth in May pressured gold prices lower on Friday, as traders braced for a potential interest rate hike from the U.S. Federal Reserve possibly as early as September.

Friday's selling tugged the gold market to its third consecutive lower weekly close, and saw August Comex gold futures fall to their lowest level since March 19. Comex August gold futures ended Friday's session at $1,168.1 while Comex July silver settledat $15.984.

"Gold's inability to rally in response to the weaker dollar this past week is a disappointment and reinforced the bearish trend that's been in place since the mid-May rally above $1,220," said Ken Morrison, trader and editor Morrison On The Markets. The U.S. dollar index gained on Friday, but closed lower on the week.

Looking ahead to next week, the gold price outlook is generally weak.According to the latest Kitco Wall Street Versus Main Street Weekly Gold Survey, 211, or 60% are bearish on gold next week; 106 or 30% are bull on prices next week and 33 voters or 10% are neutral. This week, 350 people participated in Kitco’s online survey,

The results of the Wall Street survey were a lot closer, ending in a statistical tie with a slight bias to the downside. Out of 33 market experts contacted, 19 responded; of those, nine participants, or 47%, see lower prices, eight experts, or 42%, see lower prices and two, or 11%, are neutral on the gold market.

Gold traders will monitor developments out of Greece over the weekend and into early next week. Greece missed a debt repayment deadline and is choosing to bundle its June payment to creditors. Some analysts warn this could mean the country is moving closer to a potential euro zone exit.

The Greek wild card is a potential bullish element on the table for gold, says Ira Epstein, managing director at the Ira Epstein division of Linn & Associates.

"We are going to hear more about Greece," Epstein said. "If there is no Greek calamity, I would expect the gold market falls [next week]. But, if they decide to go back to the drachma that would be bullish for gold. That is the one element that could provide support to gold prices," he said.

"The market will have its eye on the Greece debt debacle and the ever growing drama there, whether though that ignites some safe haven covering remains to be seen," added Sean Lusk, director of the commercial hedging division at Walsh Trading.

If no crisis emerges regarding Greece, Epstein expects gold to remain in a weak trend near term. He saw potential for a short-term bounce in gold, with resistance at the $1,185-$1,200 area. However, "That would be a sell zone," Epstein said. He pegged a downside target at $1,120 per ounce.

On the U.S. economic calendar next week, gold traders will be eyeing Thursday's initial jobless claims data and retail sales data. On Friday, the producer price index and Michigan sentiment survey are due for release. More significantly, gold traders are looking ahead to the June 16-17 Federal Open Market Committee meeting, which will be concluded with a press conference.

The gold market could shift into a neutral mode ahead of the key Fed meeting in mid June. "I look for the gold market to consolidate into the FOMC on June 16-17, however retail sales next week and housing data the week after could alter gold's direction. It will be interesting to see if gold can hold November lows or if this recent dip will ignite physical buying in Asia," said Lusk. Nearby gold futures fell to a low around $1,135 per ounce in November, 2014.

Adding to the bearish gold viewpoints, Polly Dampier, trader and founder of www.naturus.com said "For the short term we are leaning bearish, but we’re not married to that outlook. The decision area for us is the $1,168-62 area. If it holds the price up, at least temporarily, we could see a little bounce, but we would expect it to stay below $1,190, most likely around $1,182. If $1,168-62 fails to hold, the next support is the unfilled gap on the daily chart around $1,151," said Dampier.

Another trader saw potential to buck the current bearish sentiment in gold. "Continued uncertainty over Greece default risk and sell-off in U.S. treasuries will keep gold on the radar. I expect a bounce-back rally for gold in the week ahead. I expect gold will have a modest recovery by week's end above the current $1,165 level," said Morrison.

"The focus will increasingly shift toward the mid-June FOMC meeting and the debate will continue on the timing of the first rate hike since 2006. Support for gold is at $1,150'ish and first resistance is around $1,185'ish," Morrison added.

Walsh Trading's Lusk said the overall trend in gold is "the same as it's been the last few years: sell the rallies." On the downside, he pointed to the early spring lows in gold at $1,143 per ounce and near $1,132 per ounce late last year as downside targets and strong points of supports.

Looking ahead, analysts will watch to see if buying emerges especially if the gold market retreats toward its March 2015 around $1,143 or November 2014 lows, near $1,135.

"In the short-term, let's see whether buyers come into the market as the price pulls back. We don't have a crystal ball here, but if recent history is any guide, we should see buyers come in," said Axel Merk, president of Merk Investments.

Overall, Merk remained positive on the outlook for gold even once the Fed does begin its interest rate hiking cycle: "gold can do well in a rising interest environment if inflation rises faster than rates, that is if nominal interest rates remain low to negative," Merk concluded.

Next week, gold could react to shifts in the U.S. dollar, unexpected Greek news or the retail sales or PPI data. But, the big event for the gold market lies ahead at the June 15-16 Federal Open Market meeting, where traders will watch closely for comments at the press conference regarding the timing of a first interest rate hike.

Courtesy: Kitco News