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Debbie Carlson

Quarter-End, Golden Week Holiday Could Influence Gold Next Week

By Debbie Carlson of Kitco News
Friday, September 26, 2014 2:00 PM

(Kitco News) - Next week brings the end of the third quarter, cold comfort for bullish gold traders who are likely hoping the fourth quarter will usher in the stronger trading pattern traditionally seen in gold.

As of Friday, gold prices are down about $100 an ounce from where they settled on June 30, at $1,322. Silver is also down sharply from its June 30 settlement of $21.115 an ounce.

December gold futures fell Friday, settling at $1,215.40 an ounce on the Comex division of the New York Mercantile Exchange, down 0.1% on the week. December silver rose Friday, settling at $17.537 an ounce, down 1.72% on the week.
Survey participants in the weekly Kitco News Gold Survey were bearish. Out of 37 participants, 20 responded this week. Of those, four see higher prices, 12 see lower prices and four see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Sometimes the start of a new quarter brings a fresh perspective and allows money managers to redeploy funds to new investment strategies. Many times financial managers will take profits – or losses – just before the end of a quarter to square up ledgers and rebalance portfolios.

Some market watchers suggested the rally in gold on Thursday and concurrent drop in the U.S. dollar and equities might have been some quarter-end book-squaring.

“We did get some short covering yesterday, as the dollar fell and probably ahead of the GDP (gross domestic product) number. That could have also been some squaring up ahead of quarter-end,” said Bob Haberkorn, senior commodities broker with RJO Futures.

Yet Haberkorn doesn’t think the change in the calendar is going to be helpful for gold this time around.

“I think we’re going to see further downside. The cat’s out of the bag. The GDP number came in as expected. The dollar is going higher and it’s going to trade higher next week,” he said.

Haberkorn said he is also watching how far gold might fall for its impact on miners’ cost of production. “The one question for gold is, at what point do miners scale back production? We’ve seen them scale it back drastically already. That could put a floor in the market,” he said, if prices fall to cost of production levels.

A recent analysis by Barclays suggests that 10% of global gold production is cash-negative when using all-in sustaining costs.

George Gero, vice president with RBC Capital Markets Global Futures and a precious metals strategist, said whether gold gets a bounce next week as the fourth quarter debuts depends on news headlines.

“If gold rallies, money managers may be incentivized to allocate gold. But if the stock market is steady and … yields (rise), those (are negative) for gold. But all of this could be helpful for silver because it’s a more industrial precious metal,” Gero said.
The question, several market watchers said, is whether stocks will have a more serious correction next week, or if investors treat this week’s equity break as a buying opportunity. If it’s a buying opportunity, that could hurt gold.

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Several other events are on tap for next week, too. The European Central Bank meets on Thursday, and analysts at Standard Chartered said there is “growing skepticism that current policies will avert economic stagnation. Policy makers are keeping a close eye on growth, lending and inflation expectations, and in each case the recent news has not been encouraging.”

Normally greater liquidity from a central bank is supportive for gold, but the stimulus programs announced by ECB President Mario Draghi did little to support the yellow metal as the moves have weighed on the euro.

Also next week is the U.S. September nonfarm payrolls report, slated for release Friday. Economists are watching to see if the weaker-than-expected August figures were an anomaly or the possible beginning of a worrying trend.

“Payroll growth surprised to the downside in August. However, incoming labor market indicators released since the last jobs report have been generally more favorable for payroll growth,” said Nomura analysts. “Initial jobless and continuing claims are still near pre-recession levels. In addition, regional manufacturing surveys released thus far in September suggest that manufacturing employment continued to increase. Based on these labor market readings in September … total nonfarm payrolls will gain 210,000.”

A few holidays will occur in Asia next week, and that might mean fewer market participants, said Afshin Nabavi, head of trading at trading house MKS (Switzerland) SA.

Golden Week starts in China and in India there are a few celebrations next week, including Mahatma Gandhi’s birthday. On Oct. 8 the Hajj begins, which is the Muslim pilgrimage to Mecca, Saudi Arabia.

“I expect next week will be quiet as three important centers (of physical buying) will be out,” he said.

Nabavi said there was some fairly aggressive buying on Monday and Tuesday of this week, likely on a mix of lower prices and pre-holiday purchases, but those shoppers likely won’t be back next week if prices fall again. That could mean a test of $1,200.

“I don’t think we’ll see a lot of demand, if anything we’ll see demand fall at a time when should see demand picking up,” he said.

By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter @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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