By: Debbie Carlson
August 9, 2013
With a close over $1,300 an ounce, gold prices might be in a situation to build slightly on this week’s gains, but continued physical demand will be important and U.S. economic data could determine the market’s direction.
Gold prices ended the week up. December gold futures rose Friday, settling at $1,312.90 an ounce on the Comex division of the New York Mercantile Exchange, up 0.18% on the week. September silver rose Friday, settling at $20.407 an ounce, up 2.5% on the week.
In the Kitco News Gold Survey, out of 36 participants, 18 responded this week. Of those 18 participants, 12 see prices up, while two see prices down and four see prices moving sideways or are neutral. Market participants include bullion dealers (Gold Dealer, Silver Dealer), investment banks, futures traders, money managers and technical-chart analysts.
Gold prices rallied late in the week, lifted by a commodities-wide rally on the back of supportive economic data out of China. Market watchers said stronger German orders data, industrial production and exports, along with some improved U.K. data, also underpinned ideas of reflation in Europe.
Those factors drew traders’ “attention away from the tapering story in the U.S., which following comments from officials this week, especially the Chicago Fed’s (President Charles) Evans … remains very much in play for next month,” said analysts at Brown Brothers Harriman.
Bernard Sin, global head of precious metals trading at MKS (Switzerland) SA, said he sees a sideways to higher move for gold next week. Eid-al-fitr festivities, marking the end of Ramadan, meant some Asian and Middle Eastern countries were closed Thursday and Friday and some of those observances may continue into early next week, which might mean subdued demand.
On the other hand, Sin said, gold found a lift, along with platinum group metals, over labor strife in the South African mining industry. “I see dips as buying opportunities,” he said.
A weaker U.S. dollar and short covering also lifted gold prices, several sources said, as speculators are still heavily short the metal, according to Commodity Futures Trading Commission data. There are split views whether this will continue or if the short covering has run its course.
Kevin Grady, owner, Phoenix Trading LLC, said strong physical buying out of Asia and the Middle East supported gold this week, and the market is in backwardation, which is when the spot prices are higher than the deferred prices. That’s often seen as a sign of strong current demand. There is some miner hedging, he added, but prices still remain supported by the physical demand. Grady forecast slightly firmer prices for next week. “I haven’t felt that way in a while about gold, but there’s good physical buying here,” he said.
He’s looking ahead to September, particularly the next Federal Reserve monetary policy meeting. “A lot of people have priced in tapering. If it doesn’t happen, we could have a huge rally in gold,” Grady said.
Next week brings a return to U.S. economic data releases and a few analysts said that might be a return to dollar strength and precious metals weakness if the reports come in as, or better, than expected.
Among key reports to watch are retail sales, wholesale and retail inflation figures and manufacturing data, analysts said.
Dan Pavilonis, senior commodities broker, RJO Futures, is bearish on gold prices for next week.
“I just don’t see any reason for the market to go up. I think we can be back under $1,300,” he said, adding that he believes the short-covering activity that supported gold won’t continue.
Pavilonis said the strength in copper this week, based on the Chinese data, lifted gold. He is suspect of the data, saying that it might not represent true end-user demand, but just stockpiling to make the economic data look stronger.
Gold has a bigger, overarching trend that will ultimately cap gains, Pavilonis said. “Interest rates are going up and the dollar is going up That’s not good for gold,” he said.