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Gold Market Caught Between Greece And Fed Meeting Next Week

(Kitco News) - Despite renewed selling pressure late in the week, the gold market managed to hold on and close Friday in positive territory, ending three consecutive weeks of negative closes.

Confidence is not high that gold will be able to generate solid momentum next week as analysts expect the market to be caught in a tug of war between an uncertain geopolitical outlook in Europe and expectations that the Federal Reserve will solidify expectations for an interest rate hike in September.

August Comex gold futures settled Friday at $1,179.20 an ounce, relatively flat on the day and week, up only 0.7% since Monday’s open.  

Silver prices were not so lucky. July Comex silver futures settled Friday’s session at $15.825 an ounce, down more than 1% on the week; silver futures have now extended their losing streak to four straight weeks.

Looking ahead to next week, gold’s inability to retest resistance at the key psychological level of $1,200 an ounce has created some pessimism in the marketplace. According to Kitco News’ Wall Street vs Main Street Weekly Gold Survey, investors and market professionals are decisively bearish.

In Kitco’s online survey, 421 people voted and of those 297, or 71%, said they were bearish on gold in the short-term; 75 participants, or 18%, were bullish and 49 people, or 12%, were neutral.

The results of the professional survey were also fairly conclusive. Out of 34 market experts contacted, 20 responded; of those, 12 participants, or 47%, see lower prices, five experts, or 25%, see higher prices and three, or 15%, are neutral on the gold market. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

In economic data, the biggest impact of the week will come on Wednesday when the Federal Open Market Committee (FOMC) meeting wraps up. Not only will economists and investors be eager to read the central bank’s monetary policy statement but will also scrutinize the committee’s economic forecasts, interest rate – also known as the dot plot – projections, and listen to Fed Chair Yellen’s comments during her press conference.

However, economists and analysts are not expecting the Fed to reveal any new significant insights in economic growth and Yellen to maintain a fine balance in her comments.

KC Chang says that could be good news for gold. The commodity strategist at IHS said that he is expecting the statement and Yellen to reveal very little about future monetary policy, and because of that gold might end up bounce around in its current trading channel.

“The economy is still growing but it is not forcing the Fed to raise rates,” he said. “The Fed will remain data dependent and the gold market will now take a wait-and-see approach.”

Bart Melek, head of commodity strategy at TD Securities, said that volatility could be high on Wednesday as the Fed lowers its economic projections and interest rate forecast, which would be positive for gold; however he added that Yellen will probably reiterate in her press conference that interest rates will inevitably move higher this year, which would be negative for gold.

Of course the Fed is only half of the story for the gold market, another event analysts are now paying close attention to are Greece’s ongoing funding negotiations. The latest talk broke down as the International Monetary Fund’s negotiation team walked away from the negotiations Thursday.

“Tensions could rise in the marketplace if there is no clarity in the talks next week and that would be supportive for gold,” said Chang, which is why he is modestly bullish on gold.  

 Bernard Dahdah, precious metals analyst at Natixis agreed that uncertainty in Greece could lead to increase in physical demand but only within the country. He added that there is new optimism among investors that Europe could survive if Greece does separate; however within the country, nationals could buy gold to protect their capital.

“Greece is such a small market, even if we saw an increase in physical demand, I don’t think it will have much impact on the gold price,” he said.

Victor Thianpiriya, commodity strategist at ANZ said that the market’s problem is that so far there is no major catalyst in the marketplace because there is no new information and he doesn’t expect that will change anytime soon.

He added that even if the Federal Reserve did signal a rate hike in September, with gold hovering just above 1,170 an ounce, it has already been priced in. At the same time, the market is extremely tired of Greece’s ongoing negotiations and it will take an actually default to shock investors.

Thianpiriya, said that he is modestly bearish on gold, expecting price to remain at the bottom of their range next week as U.S. treasury yields and the U.S. dollar continue to push higher.

Although the Fed will take center stage next week other data that will be important for the gold market next week include regional manufacturing, housing and consumer price data for May.

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By Neils Christensen of Kitco News;
Follow Neils Christensen @neils_C


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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