EDITOR'S NOTE: Don’t Miss a Beat! Sign-up for the Kitco News Weekly Roundup– our newsletter highlighting our most popular features, articles and videos! Register Here

Neils Christensen

Analysts Look For Gold To Consolidate Next Week Ahead Of FOMC Meeting

By Neils Christensen of Kitco News
Friday January 23, 2015 4:04 PM

(Kitco News) - Gold prices have ended another week with gains, but according to some analysts, a rally next week could be limited as more attention is focused on the Federal Reserve and the U.S. economy.

After breaking through the key $1,300-level, hitting a five-month high on Thursday at $1,307.80 an ounce, Comex February gold futures settled the week with close to a 1% gain, settling Friday at $1,292.60 an ounce.

Comex March silver futures settled the week at $18.30 an ounce, up 46 cents, or more than 2.5% since Monday.

Howard Wen, commodity analyst from HSBC, said that because of its strong momentum, gold prices do have room to move higher, but he is expects the market to see a bit of consolidation after what has been a strong start to the year.

“Gold is still up more than 9% in the first three weeks of the year,” he said. “A consolidation period is expected at some time.”

Although gold and silver ended Friday in negative territory, they still held key support levels that some analysts suggest will be positive for the metals next week.

Ole Hansen, head of commodity strategy at Saxo Bank, said that gold should maintain its momentum as long as it holds above the 200-day moving average, which now comes in at $1,256.40 an ounce.

For silver prices, Bill Baruch, senior commodity broker at iiTrader, said that initial support comes in at $17.25 an ounce.

According to analysts, with the recent central bank surprises, the precious metals market will be focused on the Fed and their upcoming monetary policy statement on Wednesday. However, unlike the Bank of Canada and the European Central Bank, which both shocked markets this week, the Fed is unlikely to announce any major surprises, most analysts say.

The fact that the Fed is not expected to shift their monetary policy outlook could be bullish for the U.S. dollar as they remain one of the only central banks that is in any position to eventually raise rates, said Wen.

Next week, the gold market should re-establish its negative correlation with the U.S. dollar, and that steady rise in the greenback would be negative for gold, he added.

Related Stories:

Although recent surprise announcements from global central banks have created jitters in the market, analysts are not expecting any major surprises from the Fed. Economists from CIBC World Markets, said the U.S. central bank could be more dovish than expected, but it won’t be enough to change it current “patient” stance, signaling eventual rate hikes.

The ECB’s massive quantitative easing program will be the biggest bullish driving force for gold in the long-term, said Colin Cieszynski, chief market strategist at CMC Markets. However, he added, the metal should consolidate a little next week as the U.S. economy continues expand, building the case for higher interest rates.

“Gold could do well next week if the Fed comes out more neutral than expected. That would be the surprise for markets,” he said. “I don’t think they will. The Fed has room to raise rates and I think they should, just so they have room to lower them again if they need to.”

Economists at Capital Economics remain bullish on gold heading into next week, saying that recent global central banks behavior has created some uncertainty in financial markets.

They added that lower bond yields - negative bond yields in Europe - will continue to support the gold market next week.

Although a lot of attention will be on the Fed, markets will also receive some important economic data, starting with Durable goods orders data and consumer confidence on Tuesday, and ending with the first look at fourth-quarter gross domestic product numbers.

Although the U.S. economy is expected to show slower economic growth in the fourth quarter, analysts at Nomura said they still expect to see “that GDP increased at a still robust annualized rate of 3.4% in Q4.”

They added the economic growth will be driven by strong consumer activity.

By Neils Christensen nchristensen@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.
kitco news

Precious Metal Charts

Click to see this Precious Metal chart
  1. 24h
  2. 30D
  3. 60D
  4. 6M
  5. 1Y

Interactive Chart