Smaller Factors Could Have Big Impact On Gold Next Week - Analysts

By Anil Mathews (ScrapMonster Author)

October 12, 2015 03:21:25 AM

(Kitco News) - The timing of the Federal Reserve’s first interest rate hike in more than nine years and a weaker U.S. dollar will be major drivers for the gold market next week, but analyst also note a variety of smaller factors that could impact prices in the near-term.

Comex December gold futures saw strong gains in the week, settling Friday’s session at 1,155.90 an ounce, up almost 2% from Monday.

However, it was silver that stole the show this week as prices once for the second consecutive day its 200-day moving average and briefly rallied above $16 an ounce. December silver futures settled Friday’s session at $15.818 an ounce.

Analysts noted the gold market has made strong gains this week as forecasts for a Fed rate hike have been pushed back until at least March 2016. Markets have priced in a 39% chance the central bank moves in December and a 63% chance for the first quarter of next year. These shifting expectations have hurt the U.S. dollar, benefiting gold and other commodities.

Gold’s latest move Friday, which pushed prices above the 100-day moving average, came after markets digested the minutes of the September FOMC meeting released mid-week. The minutes were deemed dovish by the market as the central bank appeared to be hesitant to raise rates as members were concerned about low inflation, weak global growth and a strong U.S. dollar.

Looking ahead, there is strong optimism in the marketplace according to the Kitco News Wall Street vs Main Street Gold Survey.  This week 301 people participated in Kitco’s online survey. Of those participants, 186, or 62%, are bullish on gold next week; 67 people, or 22%, are bearish; and 48 people, or 16% are neutral.

The majority of market participants were also bullish on the yellow metal in the short-term. Out of 35 market experts contacted, 19 responded, of which 11, or 58%, said they expect to see higher prices next week. At the same time, seven professionals, or 37%, are neutral on gold, and one person, or 5%, sees lower prices. 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 ‘In Gold We Trust’ report, has said since June that the Federal Reserve will not be able to raise interest rates in 2015. He added that he is bullish on gold, saying the bottom appears to be in for the metal as the market shifts to his outlook.

He added that a weakening manufacturing sector and an overall soft global economy will force the Fed to the sidelines, which will weaken the dollar and benefit gold.

However, it’s not the Fed’s tied hands that has Stoeferle excited about a rally in the gold market but stronger silver prices.

“Our research shows that when you have a strong bull market in gold, silver actually outperforms. The narrowing of the gold/silver ratio is positive for gold,” he said.

Other analysts are positive on gold because of a broad-based commodity rally, being led by crude oil. Friday, West Texas Intermediate (WTI) crude oil touched its 200-day moving average, hitting a high of $51.42 a barrel.

Phil Streible, senior market analyst at RJO Futures, said that higher crude oil prices will lift commodity indexes and excitement should spill into gold as he expects the yellow metal to test its 200-day moving average around $1,178 an ounce.

If investors are watching the oil price to determine gold’s next move, then analysts recommend investors and traders keep an eye on renewed geopolitical turmoil in the Middle East as Russia increase its presence in the ongoing Syrian crisis.

“I expect gold prices to continue their recent upward trend . . . reflecting heightened geopolitical anxieties with Russia and the United States resuming their rivalry for power in the Middle East,” said Jeffry Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital.

However, James, founder of Optionsellers.com, who cast the only bearish vote in this week’s survey, said that he expects gold prices actually fall next week as the market has already priced in a lot of the renewed turmoil.

Peter Hug, global trading director at Kitco Metals, said that he is watching the price action in Chinese markets next week. He noted in a commentary Friday morning that Chinese stocks saw positive gains in the first two days after markets opened post- Golden Week holiday. He added that if Chinese markets continue to hold, that will be bullish for gold; if equities collapse, then so will the gold rally.

Adam Button, currency strategist at Forexlive.com said that he is bullish on gold because of the weaker U.S. dollar.

“The US dollar is entering into an extended downtrend as crowded positions are cleared out,” he said.

While the negative sentiment appears to be limited in the gold market, some analysts have tempered their bullish outlook for next week. Colin Cieszynski, senior market strategist at CMC markets, said that he is expects to see higher prices by the end of the month, but added the gold market could consolidate next week as it now faces strong resistance levels.

“I’m not bearish on gold, I just think it needs to rest next week,” he said.

Clive Lambert, technical analyst at Futurestechs, said that he thinks prices could struggle to get past near-term resistance at $1,159.60 an ounce. He added that with no clarity in the markets right now, he prefers to sit on the sidelines.

Darin Newsom, senior analyst at Telvent DTN is also strongly neutral on gold in the near-term. He added that unless there is a fundamental change in the markets, prices will remain trapped in a sideways pattern.

Technically, I want to be bullish but I don’t see any indication that computer programs will start buying,” he said.

U.S. economic data could also have an impact on gold’s direction next week as markets will receive important retails sales numbers and consumer inflation data for September. The New York Federal Reserve and the Philadelphia Federal will also release regional manufacturing reports next week.

Markets will also pay attention to anecdotal economic sentiment presented in the Federal Reserve Beige Book. A generally positive report could limit gold’s rally as it would once again shift expectations for a December rate hike.

Courtesy: Kitco News