By Neils Christensen of Kitco News
Friday October 28, 2016 14:25

(Kitco News) - With the Federal Open Market Committee meeting expected to be a non-event, markets could focus last week before the U.S. election, which could be bullish for gold, according to some analyst.

Friday afternoon, the Federal Bureau of Investigation announced that it would reopen its investigation into Democratic presidential candidate Hillary Clinton emails.

Jim Wyckoff, senior technical analyst at Kitco Metals, said this revelation could be a potential game changer for the U.S. election, creating volatility for markets, which is positive for gold. According to reports, the Volatility Index jumped 10% following the FBI’s announcement.

The latest U.S. election uncertainty is also helping to weigh down the U.S. dollar. The U.S. dollar Index is ending the week in negative territory for the first time in four weeks with the selling pressure coming late Friday.  Earlier in the week the USD Index hit an eight-month high.

The late-day U.S. dollar weakness propelled gold to its second consecutive weekly gain, with prices settling Friday at $1,276.80 an ounce, up 0.78% since Monday’s open.

The silver market is also seeing strong gains, settling Friday at 17.796 an ounce, up more than 1% since Monday.

Federal Open Market Committee Meeting A Non-Event Next Week

The FBI’s new Clinton email investigation is expected to overshadow the Fed’s monetary policy decision Wednesday. Even before the FBI’s annoucement many analysts were discounting the central bank meeting.

Most analysts agree that neither gold nor the U.S. dollar will see much benefit from Wednesday’s U.S. monetary policy decision. The Federal Reserve is expected to keep a low profile and not make waves in financial markets ahead of the U.S. election, to be held the following week.

“The market completely believes the Fed is going to raise interest rates in December so there is nothing they can say to strengthen those expectations,” said Greg Harmon, founder of Dragonfly Capital.

CME 30-Day Fed fund futures are pricing in a 9% chance that the Fed will move in November. However, markets are pricing in more than a 70% chance of at least a 25-basis-point hike in December.

Don’t Forget About Nonfarm Payrolls

Along with the Federal Reserve, the second main economic event next week will be the October nonfarm payrolls report. However, some analysts are also expecting that this will be a non-event for gold, as it is not expecting to derail interest-rate expectations.

“Right now, the key for the Fed is to avoid disaster. At this point, the economic data doesn’t even have to be great. It just can’t be a complete catastrophe,” said Nick Exarhos, senior economist at CIBC World Markets.

Gold and the U.S. Dollar

Jeffrey Nichols, senior economic advisor at Rosland Capital and managing director at American Precious Metals Advisors, said that the gold market has able to shake off U.S. dollar strength because it is being buoyed by growing physical demand, particularly in China and India. With Diwali, India’s culturally significant festival of lights, to start Sunday, he is expecting physical gold demand to remain strong next week.

Of course, not everyone is completely discounting the U.S. dollar. Exarhos said that in the past the U.S. dollar has seen its best gains between November and December as expectations continue to firm as markets prepare for a year-end interest-rate hike.

But he added that given the U.S. dollar’s performance lately, the currency probably only has a little room to move higher, which is one of the reasons why its strength is having a limited impact on gold.

“We think the U.S. dollar still has a little bit room to push higher ahead of December,” he said. “That could impact gold. Gold has probably seen its lows but its upside potential is limited in the face of a stronger U.S. dollar and rising bond yields.”

Key levels to watch

Gold prices this week have struggled to hold gains above its 200-day moving average – at $1.274.30 an ounce -- which Harmon said is not a sign of confidence in the near term.

He added that right now the market is moving up in “deeply bearish territory” and still looks weak in the near term.

“Until gold pushes above $1,310, the market looks bearish to me,” he said.

Fawad Razaqzada, technical analyst at City Index, said in a recent email to 
Kitco News that he is also watching resistance between $1,300 and $1,310 and that gold prices could see new lows as long as this level is not breached. However, Joshua Mahoney, market analyst at IG, said that as long as gold hold support at $1,260, the uptrend remains intact.

The Final Say

Besides the Federal Reserve and Friday’s employment report, investors will have a full slate of economic events monitor, including the Bank of Japan’s and the Bank of England’s monetary policy decisions

The Bank of Japan’s negative interest rate monetary policy has helped the global gold market, as its opportunity costs drop in a low-yield environment.

U.S. data will include manufacturing reports and ADP private-sector employment data, ahead of Friday’s nonfarm payrolls number.