By Allen Sykora of Kitco News
Friday November 25, 2016 12:41
(Kitco News) - Gold traders will be watching next week to see if the recent slide in gold prices sparks increased physical demand in key Asian gold-buying nations.
There are signs that this may already be picking up, traders and analysts say. Otherwise, they add, the market’ s main focus will remain on U.S. economic data and Federal Reserve comments for clues on what Fed policymakers will do with U.S. interest rates.
Comex December gold early Friday fell as far as $1,170.30 an ounce, its weakest level since February. Just before 12:30 p.m. EST, the contract was down by 2.4% for the week to $1,179.80.
“It (the market focus) will be U.S. data but the level of physical buying as well,” said Robin Bhar, metals analyst at Societe Generale. “We are already seeing some buying out of India, with the premia in price over spot London increasing. Also, in China as well, there seems to be some tightening in supply, leading to a price pickup in Shanghai premiums.”
Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA, suggested “we have seen the lows” around $1,170-an-ounce area.
“At lower prices, the market is waking up for physical demand. Maybe that is what is going to save the market,” he said.
Several observers told Kitco News they also envision buying in the futures market for a variety of reasons – bargain hunting and profit-taking by those who have had short, or bearish, trades. Some traders wonder how long outside markets that have been pressuring gold – namely stocks and the U.S. dollar – can continue to run higher.
“The dollar really hit some resistance,” said Daniel Pavilonis, senior commodity broker with RJO Futures. “The gold market really has found an area where you could start seeing buying. And, stocks are a little bit overdone. The correlation between those three markets could push gold a little higher.”
As always, U.S. economic data will be important, since this ultimately influences the Fed, Treasury yields and the dollar, in turn impacting gold.
“To a great extent, we will be trying to assess what the U.S. Federal Reserve will be saying,” said Bart Melek, head of commodity strategy at TD Securities. A number of officials are scheduled to speak next week, including Vice Chair Stanley Fischer and New York Fed President William Dudley on Tuesday.
“We will look for clues on how ready they are to lift rates, and we’ll look for clues on how enthusiastic or hawkish they might be,” Melek said.
Key economic reports include consumer confidence and a revision to gross domestic product on Tuesday, the ADP private-sector employment report, personal income and spending plus the Beige Book on Wednesday, the Institute for Supply Management’s manufacturing survey on Thursday and nonfarm payrolls on Friday.
“Obviously, an interest-rate increase in December looks almost certain,” Bhar said.
If the Federal Open Market Committee tightens monetary policy next month, as widely expected, market participants then will start trying to gauge how aggressive the central bank will be during 2017.
“Come December, we will be watching for the extent to which the Committee takes into account future fiscal policy and how it might affect the future path of interest rates,” said BNP Paribas, commenting that minutes of the November FOMC meeting “gave the impression that a December rate hike is baked in.”
The U.S. 10-year yield this week hit 2.417%, its strongest level since July 2015. Against this backdrop, the euro fell as far as $1.05183, its weakest level since December.
“Any further strength in the dollar, any further increase in bond yields and any gains in the equity markets will be reflected, as we’ve seen, in the gold price,” Bhar said.
Technically, traders will look to see if the market can regain certain chart levels, starting with the area around $1,200 an ounce. This failed as chart support on Wednesday, meaning many technicians now see it as a nearby resistance level, besides being an important round psychological number. The 10-day moving average passed through $1,212.80 Friday morning. Yet another resistance area is a band of four consecutive daily highs from roughly $1,230 to $1,233 around mid-month.