Weaker Tone For Gold May Continue; Markets Look To ECB, Jobs Data
By Debbie Carlson of Kitco News
Friday November 1, 2013 1:55 PM
(Kitco News) - The weaker tone gold exhibited toward the end of this week may continue into early next week, and market watchers said they are looking ahead for to the European Central Bank meeting and the monthly U.S. jobs data.
December gold futures fell Friday, settling at $1,313.20 an ounce on the Comex division of the New York Mercantile Exchange, down 2.9% on the week. December silver fell Friday, settling at $21.837 an ounce, down 3.5% on the week.
In the Kitco News Gold Survey, out of 34 participants, 19 responded this week. Of these, three see prices up, while 13 see prices down and three see prices sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Gold prices slid as the week wore on, with the U.S. dollar strengthening after Wednesday’s Federal Open Market Committee meeting, and after a lower-than-expected inflation rate in the eurozone. A stronger-than-expected Chicago Purchasing Managers Index also supported the dollar which pressured the yellow metal.
Jim Comiskey, senior account executive for Archer Financial Services, said at least to start the week, “there’s a good chance the market will be lower. There’s a dichotomy going on now. Basically, the metals market is saying that the Fed will taper sooner than the stock market is saying they (the Fed) will,” he said.
Other market participants said they believe gold will test the bottom of the current trading range, which has generally held roughly between $1,270s area and $1,350s. They said in addition to the dollar strength, physical buying dried up when prices touched the upper end of the trading range, with analysts noting softening gold premiums at the Shanghai Futures Exchange as an example of reduced physical demand.
One gold trader said the trend lately has been for physical buying to slow when prices rise, but come in when prices start to touch the bottom of the current range. That’s why he said he expects prices to weaken a bit as physical buyers wait for the market to come to them.
“The physical buyers appear to be very price sensitive and seem to be more aggressive under the $1,270 level,” he said.
Looking toward news events for next week, market watchers said they’ll keep an eye out for the ECB meeting on Thursday and Friday’s October U.S. monthly nonfarm payrolls report.
Chatter in the market suggests that the ECB may consider lowering their benchmark interest rates, especially after weaker-than-expected eurozone inflation data. These views weighed on the euro and firmed the U.S. dollar.
Currency analysts and economists say that the chance of an interest rate cut at the Thursday monetary-policy meeting is elevated, but they don’t believe the ECB will act to change rates. At most the central bank may take on a more dovish tone, they said.
Although there is a case for easing, as monetary conditions tightened recently and inflation is running low, Barclays’ economists said the ECB will likely wait until December to ease rates.”The main reason is that the ECB is working on a new set of forecasts to justify a new, looser monetary policy stance. It would also provide time for the ECB to study ways to maximize the effect of the LTRO (long-term refinancing option) facility, which would not only ease monetary conditions but also reduce the fragmentation in lending conditions across the zone,” they said.
Analysts at Brown Brothers Harriman suggested that if the ECB doesn’t act, it could mean traders focus again on the likelihood that the Fed won’t begin tapering its stimulus program until 2014 and that could weigh on the dollar.
Another key market event will be the Friday release of the October nonfarm payrolls from the Labor Department. Expectations are that the report will say about 125,000 to 130,000 new jobs were created last month. Analysts are debating how the U.S. government shutdown and employee furlough affected the data.
Bart Melek, vice president and director head of commodity strategy, rates and foreign exchange research at TD Securities, said for the next several months, the gold market will be influenced by economic data since the Fed is using the data to decide whether or not to taper its stimulus.
“The precious metals complex is likely to move higher on weak numbers, with strong prints driving them down. On balance, we expect weaker rather than stronger economic data from the U.S. ever the next several weeks, which implies gold moves up within its current trading range,” he said.
If the October payrolls figures are weaker than expected, gold prices could rise, but Melek said values are unlikely to move above recent highs. It would take “a fundamental downgrading of the U.S. economic outlook would be required for a new bull run,” Melek said.
By Debbie Carlson of Kitco News
Friday November 1, 2013 1:55 PM
(Kitco News) - The weaker tone gold exhibited toward the end of this week may continue into early next week, and market watchers said they are looking ahead for to the European Central Bank meeting and the monthly U.S. jobs data.
December gold futures fell Friday, settling at $1,313.20 an ounce on the Comex division of the New York Mercantile Exchange, down 2.9% on the week. December silver fell Friday, settling at $21.837 an ounce, down 3.5% on the week.
In the Kitco News Gold Survey, out of 34 participants, 19 responded this week. Of these, three see prices up, while 13 see prices down and three see prices sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Gold prices slid as the week wore on, with the U.S. dollar strengthening after Wednesday’s Federal Open Market Committee meeting, and after a lower-than-expected inflation rate in the eurozone. A stronger-than-expected Chicago Purchasing Managers Index also supported the dollar which pressured the yellow metal.
Jim Comiskey, senior account executive for Archer Financial Services, said at least to start the week, “there’s a good chance the market will be lower. There’s a dichotomy going on now. Basically, the metals market is saying that the Fed will taper sooner than the stock market is saying they (the Fed) will,” he said.
Other market participants said they believe gold will test the bottom of the current trading range, which has generally held roughly between $1,270s area and $1,350s. They said in addition to the dollar strength, physical buying dried up when prices touched the upper end of the trading range, with analysts noting softening gold premiums at the Shanghai Futures Exchange as an example of reduced physical demand.
One gold trader said the trend lately has been for physical buying to slow when prices rise, but come in when prices start to touch the bottom of the current range. That’s why he said he expects prices to weaken a bit as physical buyers wait for the market to come to them.
“The physical buyers appear to be very price sensitive and seem to be more aggressive under the $1,270 level,” he said.
Looking toward news events for next week, market watchers said they’ll keep an eye out for the ECB meeting on Thursday and Friday’s October U.S. monthly nonfarm payrolls report.
Chatter in the market suggests that the ECB may consider lowering their benchmark interest rates, especially after weaker-than-expected eurozone inflation data. These views weighed on the euro and firmed the U.S. dollar.
Currency analysts and economists say that the chance of an interest rate cut at the Thursday monetary-policy meeting is elevated, but they don’t believe the ECB will act to change rates. At most the central bank may take on a more dovish tone, they said.
Although there is a case for easing, as monetary conditions tightened recently and inflation is running low, Barclays’ economists said the ECB will likely wait until December to ease rates.”The main reason is that the ECB is working on a new set of forecasts to justify a new, looser monetary policy stance. It would also provide time for the ECB to study ways to maximize the effect of the LTRO (long-term refinancing option) facility, which would not only ease monetary conditions but also reduce the fragmentation in lending conditions across the zone,” they said.
Analysts at Brown Brothers Harriman suggested that if the ECB doesn’t act, it could mean traders focus again on the likelihood that the Fed won’t begin tapering its stimulus program until 2014 and that could weigh on the dollar.
Another key market event will be the Friday release of the October nonfarm payrolls from the Labor Department. Expectations are that the report will say about 125,000 to 130,000 new jobs were created last month. Analysts are debating how the U.S. government shutdown and employee furlough affected the data.
Bart Melek, vice president and director head of commodity strategy, rates and foreign exchange research at TD Securities, said for the next several months, the gold market will be influenced by economic data since the Fed is using the data to decide whether or not to taper its stimulus.
“The precious metals complex is likely to move higher on weak numbers, with strong prints driving them down. On balance, we expect weaker rather than stronger economic data from the U.S. ever the next several weeks, which implies gold moves up within its current trading range,” he said.
If the October payrolls figures are weaker than expected, gold prices could rise, but Melek said values are unlikely to move above recent highs. It would take “a fundamental downgrading of the U.S. economic outlook would be required for a new bull run,” Melek said.
