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 | Gold Futures End Four-Week Losing Streak, Analysts See $1,200 Holding Next WeekBy Neils Christensen of Kitco News |
(Kitco News) - An early morning rally following a drop in fourth-quarter GDP growth, and disappointing manufacturing data from the Chicago region, helped gold prices end the week in positive territory, capping a four-week losing streak, according to some analysts.
The analysts add that next week could be positive for the gold market as it has managed to hold above key psychological support at $1,200 an ounce. Comex April gold futures settled Friday at $1,213.10 an ounce, up $9.60 or 0.8% for the week.
Comex May silver futures also ended the week in positive territory; prices settled at $16.558 an ounce, up 22.8 cents or 1.4% since Monday.
Bart Melek, head of commodity strategy at TD Securities, said the recent data shows that the U.S. economy is starting the new year off slower than expected. He added that there are risks that the economic data continues to disappoint and that will shift expectations of when the Federal Reserve will be able to hike interest rates.
“The $1,192 area is very strong support and I think that could hold next week,” he said. “I think the risk is that gold prices trade at the upper end of their band next week.”
Looking at technical factors, Melek said that a convincing break above $1,216 an ounce could lead to a test of $1,230 an ounce.
Colin Cieszynski, senior market analyst at CMC Markets, is also bullish on gold prices next week. Now that geopolitical tensions are easing in Europe, and with Greece securing another four months of funding, Cieszynski said that the market will return its focus on the European Central Bank’s (ECB) quantitative easing strategy.
“The ECB said they would launch their bond buying program in March and well that is next week,” he said.
Cieszynski added if markets focus on Europe then investors can expect to see gold rally alongside the U.S. dollar.
The ECB meets next Thursday and although it won’t be as dramatic as the January meeting when they announced its expanded asset-backed purchase-program, investors will want to get more clarification on when the bank will start making purchases, and how fast it will ramp up its balance sheet.
George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, said that he remains bullish in gold next week because it’s still not clear when the Federal Reserve will be hiking interest rates.
The testimony from Fed Chair Janet Yellen, Tuesday and Wednesday, indicated that the Fed is “kicking the can down the street.”
Gero said that data released next week will be scrutinized by economists and market participants to determine if it supports the Fed’s view that the economy is recovering and if it can handle a new rate hiking cycle.
The report that will have the biggest impact on Fed expectations will be Friday’s nonfarm payrolls report. So far economists are expecting to see another strong report, with consensus forecasts calling for the economy to add 241,000 jobs.
Although the jobs report will garner the most market attention, the week is packed with important reports including the Institute for Supply Management Purchasing Managers Index, which looks at the national manufacturing sector. The market will also receive personal income and spending data for January.
Along with the ECB, the Bank of Canada (BOC) will hold its monetary policy meeting next week. The last time the central bank met it cut rates by 0.25 basis points brining rates to 0.75%.
With so much risk in the marketplace, Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report, said that gold investors should use some caution next week.
Although he is bullish on gold in the long term, he sees some headwinds next week, most because gold has been unable to build any solid momentum. He added the negative interest rates in euro alone should be providing strong support for gold prices.
“Gold prices should be higher,” he said. “The fact that it hasn’t been able to rally could lead to lower prices next week.”
Although gold could dip next week against the U.S. dollar, he said that the yellow metal could still remain strong in euro terms and Japanese yen terms, which should continue to attract long-term investors.
He added the biggest factor investors need to keep an eye on the economic data to determine if the U.S. economy is facing deflationary pressures.
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By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C
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