By Paul Ploumis (ScrapMonster Author)

April 04, 2016 02:51:54 AM

(Kitco News) - Gold traders will be keeping close tabs on the U.S. dollar and some important technical-chart levels next week to gauge where the yellow metal is headed next.

Gold futures rose during the first four days of this week, but then gave back much of the gains as the U.S. dollar rose Friday in the aftermath of a strong U.S. nonfarm payrolls report and Institute for Supply management survey on the manufacturing sector. Around 1:30 p.m. EDT, June gold was up $4.80, or 0.4%, for the week to $1,223.50 an ounce. May silver was down 13 cents, or 0.9%, to $15.07.

The euro, meanwhile, traded as far south as $1.13348 from $1.13803 late Thursday, although the single European currency was recovering Friday afternoon.

Sean Lusk, director of commercial hedging with Walsh Trading, characterized gold’s weakness on the final day of the week as fund profit-taking after one of the best quarters in years. Spot gold rose 16% during the January-March period, before pulling back on the first day of April.

“The dollar has been the main driver, more than anything else,” said Charles Nedoss, senior market strategist with LaSalle Futures Group, but also adding that the metal at one point was down around the 50-day moving average. “Where we are going with (U.S. interest) rates here is anybody’s guess. It seems to me even though you had some positive economic news today, the odds of them (Fed policymakers) doing anything in June are still pretty low.”

Nonfarm payrolls rose 215,000 in March, the Labor Department reported Friday. The ISM’s headline reading rose to 51.8%, the first time in six months it was above the key 50% level that is the dividing line between contraction and expansion in the sector, after 49.5% in February.

The market will be monitoring economic data, any speeches by Federal Reserve officials, plus economic and other news in Europe to get a feel for where the dollar is heading, said Phil Flynn, senior market analyst with Price Futures Group. Gold has a tendency to move inversely to the U.S. currency.

Friday’s jobs report led market participants to move forward the timing for the next Federal Reserve rate hike, Flynn said. However, the analyst said he envisions a rebound in the metal next week on ideas that the data will be “non-committal” – not strong enough to prompt Fed policymakers to hike in the immediate future.

“While it (the economic picture) is generally improving, it’s been very inconsistent as far as strength,” Flynn said. “The inconsistency will keep the Fed on guard about raising interest rates.”

Nedoss suggested the dollar got a “dead-cat” bounce, and he doubts the U.S. currency has hit its lowest levels. “The weekly charts don’t look so good,” he added.

Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report, said he is not surprised that gold investors are taking profits following a slightly better-than-expected employment report.

“Gold was due for a selloff,” he said. “Right now the market is working off its overbought situation.”

However, Stoeferle said he remains optimistic on the yellow metal as the U.S. dollar looks top-heavy. “I think we can say that the U.S. dollar bull market is over and ultimately that is going to be good for gold,” he said.

The U.S. economic calendar will lighten up after a heavy schedule this week. Major reports next week will include factory orders on Monday, the Institute for Supply Management’s service-sector survey Tuesday and weekly jobless claims Thursday.

Equities could also play a role in gold’s moves, especially with first-quarter earnings reports approaching, Lusk said.

Meanwhile, observers said a couple of chart levels will be important for gold. Nedoss pointed out that after breaking the 20-day moving average last week, the June futures fell nearly to their 50-day moving average at one point Friday. This stands at $1,209.80; the session low was $1,210.30.

Lusk also commented that the early-week low of $1,207.70 an ounce, the weakest level since Feb. 22, will an important chart level for gold to hold.

“If not…we could probably go challenge $1,185 to $1,182 to the downside,” Lusk said. “It could fall that fast. A lot of this will be predicated on what the dollar is doing and what the stock market is doing.”

However, should gold fall too far, some “bottom fishing” may well occur from those who want to want to hold a long position, Nedoss added.

Courtesy: Kitco News