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Gold Traders To Keep Eyeing U.S. Economy, Russia For Next Direction

By Allen Sykora of Kitco News
Friday April 4, 2014 3:10 PM

(Kitco News) - Gold traders will be monitoring U.S. economic data and the Russia-Ukraine crisis next week while deciding which way to push the precious metal, analysts said.

Additionally, they will be keeping tabs on the price action around a number of widely followed moving averages that are just above or below the market, they added.

Comex gold for June delivery settled, after the pit session, Friday at $1303.50 an ounce, a gain of $18.90 for the day and $9.20 from the prior week. May silver finished at $19.946, up 14.1 cents for day and 15.6 cents for the week.

Gold was higher in the overseas session Friday, then climbed further during North American hours after monthly U.S. jobs report.

The government reported that nonfarm payrolls rose by 192,000 in March, when expectations had been for 195,000 to 200,000. Job gains for the prior two months were revised higher by a combined 37,000. The jobless rate held at 6.7% when expectations were for a small dip to 6.6%.

The data prompted some short covering along with fresh buying, said Sean Lusk, director of commercial hedging with Walsh Trading. “They (traders) were looking for a little better report than they got, although it wasn’t far off,” he said.

Richard Baker, author/editor of the Eureka Miner's Market Report, commented that the jobs report had “something for everyone.” Job growth of 192,000 last month fell just short of expectations, boosting Federal Reserve doves and metal prices, which he said responded “positively to hints of continued monetary accommodation.” However, since the March payrolls figure was not far from expectations and the two prior months were upwardly revised, the S&P 500 hit all-time highs at the open – before a later retreat -- as equity bulls divine slow but steady domestic growth from the data.

“Reduced anxiety about Federal Reserve tightening and simmering geo-political tensions in the Ukraine should support a further advance for the yellow metal,” Baker said. “My gold target for next week is therefore up, likely stalling at $1,320 per ounce technical resistance.”

In the weekly Kitco News gold survey, 11 out of 18 respondents see prices rising next week. Five see prices down and two see them sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.

In particular, traders will likely be looking for further insight on how the U.S. economy, is performing, said Robin Bhar, metals analyst with Societe Generale.

“I think it’s getting back on track and that seems to be confirmed by today’s pretty positive number,” he said.

In particular, traders will be watching to see how data impact the U.S. dollar and Treasury yields, he added. Gold often moves inversely to both.

The U.S. economic calendar is light at the start of the week before picking up in the second half.  A major highlight will be Wednesday, with the release of the minutes from the March 18-19 meeting of the Federal Open Market Committee.

After the minutes, markets will receive weekly jobless claims and the U.S. government will release its monthly budget balance Thursday. Then come producer prices and a consumer sentiment reading from the University of Michigan and Thomson Reuters on Friday.

Peter Hug, global trading director with Kitco Metals, said he was closely eyeing a couple of key chart points, but cited the economy and Russia-Ukraine tensions as factors that could lead to breakouts either way.

During an interview, he listed an upside level of $1,302 for June gold, which was broke later in the afternoon. This breach could generate further momentum-based buying, he explained. Meanwhile, the area around $1,278 is shaping up as “relatively significant” downside support after the market previously bounced from there twice.

The economy seems to be gradually improving, which means the FOMC is likely to continue to taper its bond-buying program known as quantitative easing, Hug said.

“In that context, I’m seeing capital flows likely going into the U.S. dollar and away from the euro,” he said. “In that scenario…I think the chances of the break in gold will probably be to the downside as opposed to the upside.”

However, he pointed out, geopolitical tensions between Western nations and Russia are higher than they’ve been since the 1980s after Russia’s annexation of Crimea, even though Russia has said it won’t try to take more territory.

“If that situation accelerates and there is more bluster, I think there will be movement into safe havens,” Hug said. And this could mean further gains for gold, he continued.

One other catalyst that could help gold, he added, would be if the U.S. stock market should prove to be top-heavy after recent gains. If it topples, this could mean some reallocation of funds away from equities and into commodities, including gold.

Market Also To Eye Physical Demand, Moving Averages  

Traders also will be watching to see whether physical demand picks up, particularly in the Asian region, observers said.

“This is fairly quiet at the moment, but there are some more favorable noises coming out of India,” Bhar said.

Authorities there indicated this week they are ready to start relaxing some of the restrictions on gold imports in the key gold-consuming nation now that the current-account deficit has narrowed. Nevertheless, Bhar added, actual relaxation of the rules may not occur until after spring elections.

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George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, commented that funds could step back into the market now that a new quarter is under way.

Charles Nedoss, senior market strategist with LaSalle Futures Group, commented that traders will be watching to see what happens around several moving averages.

“Technically, the 200-day will be big,” Nedoss said, putting this around $1,298.60 as of when he spoke. “I don’t see big buying coming in until we get above $1.309.40, which is the 50-day. The real hot money probably comes in above $1,325.20 (the 20-day average).

“Conversely, to the downside, taking out (the 100-day moving average of) $1,275.10, you wash out down to $1,250.”

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.
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