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Debbie Carlson

METALS OUTLOOK: U.S. Fiscal Fight, Unemployment Data To Keep Gold In Check

By Debbie Carlson of Kitco News
Friday September 27, 2013 1:50 PM

(Kitco News) - The U.S. Congressional showdown over government funding and a monthly jobs report will keep gold market participants occupied next week.

December gold futures rose Friday, settling at $1,339.20 an ounce on the Comex division of the New York Mercantile Exchange, and rose 0.5% on the week. December silver rose Friday, settling at $21.8310 an ounce, but fell 0.49% on the week. 

In the Kitco News Gold Survey, out of 36 participants, 19 responded this week. Of those 19 participants, 11 see prices up, while four see prices down and four are neutral or see prices trading in a range. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Gold prices rose slightly this week as the market held in a relatively modest range as bickering between Democrats and Republicans in Congress over the continuing resolution to fund the U.S. government left a number of market participants on the sidelines, several analysts said.

The lackluster trading action was evident in other markets, too, with U.S. Treasury bond yields creeping lower and the Standard & Poor’s 500 stock index futures drifting lower. Analysts said markets as a whole also continued to digest the implications of the Federal Reserve’s decision not to taper its quantitative easing program.

Unless Congress can come to some agreement and pass the continuing resolution, the U.S. federal government will shut down on Oct. 1. The sticking point is that some Republicans are tying the continuing resolution to defunding “Obamacare,” the new health insurance law.

Debate will continue into the weekend, and considering recent history, many market watchers expect this will go to the 11th hour. If no deal is reached, non-essential functions will cease, but essential functions will continue.

The U.S. government has been shut down before, with the longest occurring from Dec. 16, 1995 to Jan. 6, 1996. Looking at a price chart, from Dec. 15, 1996 to Jan. 10, 1996, gold prices went from about $386 to $396. While gold prices rose during the government closure, analysts said it’s important to remember that other factors may have influenced gold’s rise at the time.

Bernard Sin, global head of precious metals trading at trading house MKS (Switzerland) SA in Geneva, said the looming government shuttering is one of several reasons why he’s “feeling a little bullish next week.”

He said the Fed’s decision not to taper gives underlying support to gold since they are continuing to buy bonds. Additionally, he said U.S. employment data is likely to come out weak, which should support gold. On Friday the August nonfarm payrolls are slated for release and after July’s lower-than-expected figures, market watchers will closely watch the report.

Some economists expect the September employment data to improve over the August reading. Analysts from Nomura said September data should be stronger than the August reading as they said there’s been some betterment in labor data. The firm said the weekly initial jobless claims appear to be on a downward trend in September, even after accounting for the distortions caused by technical issues in a couple of states. Nomura said they expect total nonfarm payrolls to rise 180,000 and that the unemployment rate will fall by 0.1 percentage point to 7.2% in September because of slowing jobless claims.

Other events to watch next week include the Japanese Tankan survey, which Nomura said is expected to be strong and should give Prime Minister Shinzo Abe the go-ahead for a consumption tax hike. The European Central Bank meets Wednesday, although no policy change or announcement is expected.

Next week will be important for the physical market as China is closed part of the week for its Golden Week holiday. Views vary on what this will mean. Those who see weaker prices said the absence of Chinese buyers will mean a slump in physical demand and thus lower prices, noting that during the week-long February holiday, gold prices fell. However, Sin said he believes physical demand will stay firm enough even without Chinese buyers.

Sin noted that physical gold demand “is not very strong, but it is stable. Physical dealers are moving to the sidelines waiting for the opportunity to buy (at lower prices), but they may have to swallow their pride and buy when they can.”

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By Debbie Carlson dcarlson@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.
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