Make Kitco Your Homepage
Gold Outlook

Gold Traders To Eye Jobs, Other Data For Clues On Fed Policy

(Kitco News) - Much of gold’s rally so far in 2016 has been fueled by market doubts that the Federal Reserve will hike interest rates again in the foreseeable future.

As a result, traders will be closely scrutinizing a heavy slate of U.S. economic data next week – including nonfarm payrolls, the granddaddy of all reports – to see if there is any kind of seismic shift that could reshape market expectations.

Comex April gold settled Friday at $1,220.40 an ounce, loss for the week of $10.40, or 0.8%. March silver fell 68.4 cents, or 4.4%, for the week to $14.689 an ounce.

Gold futures were higher for the week through Thursday but fell on Friday, as stronger stocks took away some of the safe-haven bid in the yellow metal, said Sean Lusk, director of commercial hedging with Walsh Trading. The Dow Jones Industrial Average hit a seven-year high before giving back the gains in early afternoon. The dollar also rose, which tends to weigh on gold.Gold

Despite the decline for the week, participants in the weekly Kitco gold survey remained upbeat on the metal. Of 1,428 people participating in Kitco’s online survey, 1,111 participants, or 78%, said they are bullish on gold for next week. Ten out of 18 market professionals, or 56%, said they expect to see higher prices.

“The main focus will continue to be the likelihood or not of further increases in U.S. interest rates-- essentially Fed policy,” said Robin Bhar, metals analyst with Societe Generale.

Lower U.S. rates tend to support gold by pressuring the dollar and also mean a lower so-called “opportunity cost” of holding gold. This refers to less lost interest earnings from holding a non-yielding asset like the metal rather than say a bond. Conversely, tightening prospects hurt the precious metal.

Much of the U.S. data released so far in 2016 has been on the softer side, including a drop-off in U.S. nonfarm payrolls growth in January to 151,000 new jobs. This came after gains of 280,000 in November and 262,000 in December.

The overall trend in economic data so far this year, along with commentary to date from Federal Reserve officials, has suggested no more rate hikes for some time, Bhar said.

“A lot of forecasters have become less optimistic and have assumed only one rate increase now for all of 2016 rather than the two or three rate increases that they had penciled in,” he said.

The Institute for Supply Management issues its manufacturing survey on Tuesday and service-sector survey on Thursday. Other data next week include the ADP report on private-sector jobs growth and the Federal Reserve’s “Beige Book” report Wednesday, then weekly jobless claims, productivity, unit-labor costs and factory orders on Thursday. The nonfarm payrolls report is due out Friday.

“The big key is going to be the jobs data in the first week of the month – the private(-employment) numbers on Monday and obviously the unemployment report on Friday is first and foremost,” Lusk said.

Lusk commented that data would REALLY have to be strong to get traders expecting rate hikes again, including a robust payrolls report that includes upward revisions to past months. Nevertheless, improvement in data might at least cause uncertainty again among market participants on whether to expect further tightening beyond the 25-basis-point hike in December.

Lusk said he looks for gold to have a good week since data is unlikely to be strong enough to trigger rate-hike expectations, clearing the way for gold gains, assuming technical-support levels hold.

Traders also will be keeping an eye out for any comments from Federal Reserve officials. Lusk noted they have tended to be on the dovish side lately. However, as the March 15-16 Fed meeting approaches, there will be a “blackout period” in which policymakers stop speaking out on their views about the economy and monetary policy, Bhar added.

Additionally, gold traders will continue to cast one eye toward the oil and stock markets. Weakness in these outside markets has tended to lead to safe-haven buying of gold, and vice-versa.

“As crude oil stabilizes, it stabilizes equity markets and that will take the safe-haven bid away from gold,” said Bill Baruch, senior commodity broker at iiTrader.
Otherwise, he said there are still reasons to be optimistic for gold in the medium term, explaining that that prices have managed to hold significant support despite improvement in the stock market.

“I think there is value for gold between $1,200 and $1,222, and any dip will attract buyers,” he said.

Editor’s note: Reporter Neils Christensen contributed to this article.

.By Allen Sykora of Kitco News; asykora@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
kitco news

Follow Kitco News

Precious Metal Charts