Gold Market To Take Cue From Trump, Yellen, Economic DataBy Allen Sykora of Kitco News
Friday February 10, 2017 11:36
(Kitco News) - Political developments, congressional appearances by Federal Reserve Chair Janet Yellen and a heavy slate of U.S. economic data will be on the radar for gold traders next week.
The precious metal climbed this week, hitting its most muscular level since November. Both Wall Street and Main Street participants in the weekly Kitco News gold survey expect prices to keep climbing next week.
Several observers commented that market participants will be continuing to monitor any news from U.S. President Donald Trump, from his call for tax reform to cabinet appointments to the Tweets he tends to make criticizing those who disagree with his positions.
In particular, traders will be watching to see if Trump offers any more clues on his plans for possible tax cuts, said Bart Melek, head of commodity strategy with TD Securities. Trump said on Thursday that he intends to offer a “phenomenal” tax plan in the coming weeks. His White House press secretary said this plan would address both business and individual taxes.
Charles Nedoss, senior market strategist with LaSalle Futures Group, said one key for markets may be whether the U.S. President focuses on issues such as taxes and government regulations, or whether he remains preoccupied with other matters, such as taking his refugee ban to the Supreme Court.
“I think the administration is right now stepping on its own message, which would be positive for the (stock market). In other words, let’s focus more on taxes, let’s focus on deregulation,” Nedoss said. “That would be positive for the equity markets, which would start to weigh on gold. That would also buoy the dollar, which would be negative (for gold).”
Traders will also closely scrutinize U.S. economic data as they gauge just when the Federal Reserve might hike interest rates again. As of now, markets appear to be focused on a potential hike in June, said Kevin Grady, president of Phoenix Futures and Options LLC.
The key report next week may well be retail sales, Melek said This is to be released on Wednesday along with the consumer price index, Empire State manufacturing survey and industrial production. Other major reports include producer prices on Tuesday, then weekly jobless claims, housing starts and the Philadelphia Fed survey on Thursday.
“Retail sales will be quite important, mainly because they will set the tone on what demand might be like in the U.S. economy and therefore give markets some sense of what the Fed might do,” Melek said.
For Fed clues, traders will be closely watching comments from Yellen when she gives her semiannual testimony on monetary policy before Congress. She is scheduled to appear before the Senate Banking Committee on Tuesday, then the House Financial Services Committee the next day.
TDS analysts anticipate “more of the same” from Yellen, Melek said.
“She is going to say the U.S. economy is doing better and employment is improving. But I don’t think she’ll give us a signal that she is prepared to aggressively increase rates right now,” Melek added.
Hints of higher interest rates tend to push up Treasury yields and the U.S. dollar while weighing on gold, and vice versa.
Besides the news flow itself, traders are taking notice of the recent rise in exchange-traded-fund holdings. As a result of the recent ETF trend, Grady looks for more upside in gold next week.
During one pullback in prices in the not-too-distant past, the number of open positions in the Comex futures fell by some 80,000 to 90,000 lots in just a few days, Grady pointed out. These speculators tend to get in and out of the market “fast,” he explained. By contrast, ETF holders tend to stay for longer.
“What’s happening now is we’re starting to see investors come in on the GLD side, which we didn’t have last time (gold rallied),” he said, referring to the SPDR Gold Shares ETF. “I think the ETF guys will be staying in for longer. Even if the futures sell off, I think they (ETF investors) are going to be buying into dips.”
Data on the GLD website show that metal put into storage, in order to back the ETF’s shares, has increased to 832.58 tonnes as of Thursday, up from 799.07 at the end of January.
Worrisome news about Italian banks and Greece’s economy is starting to emerge as well, which may be adding some “spark” to recent moves in gold, Grady added.
Kitco senior technical analyst Jim Wyckoff said the next key upside near-term price objective for the bulls in April gold is “solid” resistance around $1,250 an ounce. Not far above this lies the 50% retracement of the decline from the July high to the December low, which is around $1,257.
Nedoss said another technical key for April gold will be whether it can hold above a number of moving averages. As of mid-morning, the 100-day average was near $1,229, the 10-day near $1,223 and the 20-day around $1,215.
“The overall trend is higher,” Nedoss said. “But I would start to get nervous if we started to see some closes under (the 20-day near) $1,215.”