By Paul Ploumis 03 Aug 2015 Last updated at 04:00:14 GMT
(Kitco News) - Gold and silver prices saw sharp losses this month and with little direction from the Fed after its July monetary policy meeting, analysts say that markets will be sensitive to economic data next week, especially Friday’s nonfarm payrolls report.
Although recent economic data has been generally positive -- highlighted with the second quarter gross domestic product report that showed the U.S. economy grew by 2.3% between April and June -- it hasn’t been enough to solidify expectations that the U.S. central bank will raise interest rates in September. That uncertainty has helped support the gold market, according to analysts
Gold ended its sixth consecutive week in negative territory, but the price managed to bounce off its lows as traders covered their shorts, pushing prices near the $1,100-an-ounce mark. December Comex gold futures settled the week at $1,095.10 an ounce, relatively flat from Monday. However, the losses were worse on a monthly basis with gold futures closing lower for its second consecutive month, losing 6.6% and ending July at its lowest point since February 2010.
Silver prices faired a little bit better than gold, as it managed to close the week in positive territory, settling at $14.745 an ounce, up almost 1%, and ending a five-week losing streak. However, similar to gold, silver ended July in negative territory, falling 5.7% for the month.
Looking ahead, gold’s short-term outlook is mixed, according to the Kitco News Wall Street vs Main Street Weekly Gold Survey. The results showed that the majority of retail investors continue to have a negative outlook on gold while most market professionals are neutral, expecting prices to bounce around current levels.
This week, 420 people participated in Kitco’s online survey; of those, 285 participants, or 68%, said they are bearish on gold next week; 108 participants, or 26%, are bullish and 27 people, or 6%, are neutral. This is the third consecutive week the majority of retail investors have been bearish on gold prices.
Out of the 33 market experts contact for Kitco’s professional survey, 17 responded, of which four, or 24%, said they expect to see higher prices next week. At the same time, six professionals, or 35%, said they see lower prices, and seven people, or 41%, are neutral on gold. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
The analysts who are bearish pointed to the fact that gold is technically oversold and due for a bounce, but even then, gains would be limited. Peter Hug, global trading director at Kitco Metals, said that he could see gold prices rallying $20 next week as more traders cover their shorts, but any rally would be unsustainable.
Ken Morrison, editor of the market newsletter Morrison on The Markets, also said that he could see gold futures pushing to a high of $1,120 next week.
Bart Melek, head of commodity strategy at TD Securities, said that prices have been struggling to break above $1,100 an ounce, which could be an indication that markets want to move lower in the near-term; however, he added that it all depends on the data.
The biggest data point next week will be July’s nonfarm payrolls report, which will be released Friday. According to market consensus, economists are expecting that 224,000 jobs were created in July. Melek added that a reading above 200,000 could still be gold negative.
A slightly weaker print might delay the Fed’s first rate hike until December instead of September, Melek added there is little difference between the two meetings.
Bernard Dahdah, precious metals strategist at Natixis, said that even disappointing employment data might not be enough to push metals higher as the central bank set the bar low for the labor market.
“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market…” the Fed said in its July monetary policy statement. Dahdah explained that inclusion of “some” in the statement is an indication that interest rates could go higher, despite lower job growth.
“I don’t see anything pushing up gold prices any time soon. I wouldn’t be surprised to see gold eventually go below $1,000 an ounce,” he said.
However, not all analysts are convinced that prices are destined to go lower. John Weyer, director of commercial hedging at Walsh Trading, said he is expecting prices to remain neutral next week; however, he added if the data is weaker than expected, it could not only shift expectations about a September rate hike but also create doubt as to whether the central bank will pull the trigger this year at all.
Because of low trading volume towards the end of the year, with traders thinking more about the holidays than markets, the central bank might be reluctant to rock the boat.
“It’s tough to end the year on a rate hike,” he said. While the main economic event next week will be July’s employment report, the markets will also receive important manufacturing and service sector data.
Courtesy: Kitco News