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Debbie Carlson

METALS OUTLOOK: Gold To Be Bookended By Chinese New Year, Jobs Report Next Week

By Debbie Carlson of Kitco News
Friday January 31, 2013 2:11 PM

(Kitco News) - The gold market has two major influences next week -- the continuation of the Chinese New Year at the beginning of the week and the monthly U.S. nonfarm payrolls data release at the end, with these two events acting as bookends for the market.

February gold futures fell Friday, settling at $1,239.80 an ounce on the Comex division of the New York Mercantile Exchange, down 1.9% on the week, snapping a five-week winning streak. March silver fell Friday, settling at $19.120 an ounce, down 3.3% on the week. For the month of January gold rose 1.1% and silver fell 5%.

In the Kitco News Gold Survey, out of 33 participants, 21 responded this week. Eleven see prices up, while seven see prices down and three see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Gold saw a volatile week, lifted by the turmoil in emerging markets’ currencies, but then pressured by improving U.S. economic reports. U.S. economic data, particularly the release of the January nonfarm payrolls report slated for release Friday, will be a focus for gold, especially with the Chinese New Year slowing trade.

Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA, said physical demand volumes out of Asia dwindled considerably since Thursday with the start of Chinese New Year.

“It really feels like no one is in the market,” he said. “I wouldn’t be surprised if we are in a range next week. We couldn’t get our head above $1,275 but yet we can’t get below $1,225ish. Next week is a big week because of the nonfarm payrolls and it’s possible we could be range-bound until then. The New Year celebrations go until Wednesday, but I don’t expect any Chinese traders to come back to the market until the following Monday.”

Market watchers said after December’s nonfarm payroll came in much weaker than expected, there will be heightened attention on the January report. With a number of U.S. economic reports coming in as-expected or slightly higher than expected, such as Thursday’s 3.2% gross domestic product reading, several economists said there’s a good chance the December reading was an outlier.

For example, analysts at Nomura said December’s weakness was likely because of wintry weather, rather than a slowing labor market. “Labor market indicators received since the last jobs report have been solid, suggesting steady labor market momentum in January,” Nomura said, adding that the firm forecasts a 175,000 increase in total nonfarm payrolls and the unemployment rate falling 0.1 percentage point to 6.6%.

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Several global purchasing manager reports are set for release next week and those will be eagerly watched, especially given the volatility in the emerging markets and weakness in global equity markets which fell because of ideas growth outside of the U.S. is fragile. China, the eurozone and the U.S. are set to publish PMI data next week. 

The European Central Bank is scheduled to meet Thursday, although no action is expected. After Friday’s lower-than-expected inflation data, economists said the bank may have to deal with it in the future. “The ECB's latest quarterly bank lending survey shows that lending dynamics are still subdued but perhaps a bottom has been reached. In the end, we think the ECB will respond to well-below-target inflation and weak bank credit growth and cut rates further in the coming months,” analysts at Barclays said.

Gold-market watchers are also keeping an eye on technical charts. This week gold fell through a technical-chart trend line, but so far it is not a big concern, one analyst said. “We did not see an immediate extension once prices broke above the downward sloping trend line that extends over the price peaks of August and October but rather a minor dip. I anticipate a large bounce off of $1,225 during the first half of February,” said Ralph Preston, principal, Heritage West Financial.

Some analysts believe gold weakness is limited on thoughts that the turbulence in the emerging markets is not over yet. With China closed for several days for their New Year holiday, it may help to calm markets temporarily, analysts said. If the fears about the emerging-market currencies reignite, gold could rebound, but Edel Tully, market strategist at UBS, said that’s not necessarily a given.

“Quite possibly, in the event of a broader market correction should EM turmoil develop stronger roots, gold could be sold sharply along with other asset classes – gold has certainly been victim of this in the past when cash becomes king and margin calls are at play. But it's feasible to think that gold could separate itself from the crowd and start climbing again. But, and at this stage it’s a big but, much will depend on whether investors are prepared to give gold a second chance,” Tully said.

By Debbie Carlson dcarlson@kitco.com
Follow Debbie Carlson at @dcarlsonkitco


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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