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U.S. Employment Data To Dominate Gold Market Next Week – Analysts

(Kitco News) - A data-filled shortened trading week could help gold break out of its four-month range; however, with a market bias for the Federal Reserve to hike rates sooner rather than later, the break could be on the downside, according to some analysts.

Although Greece remains a wild-card in the marketplace, most analysts agree that the focus next week will be on U.S. economic data, with the main event Thursday as markets will receive June’s nonfarm payrolls report a day earlier because of U.S. Independence Day.

After being unable to push above the key psychological level of $1,200 an ounce, Monday, August Comex gold futures are ending the week in solidly negative territory. August gold futures settled Friday at $1,173.20 an ounce, down more than 2% since Monday, wiping out most of the gains made in the last two weeks.

The silver market also continued it’s down trend, retracing all of the previous week’s gains. Friday, Comex July silver futures ended the session at $15.735 an ounce, also down more than 2% since Monday.

According to the Kitco News Wall Street vs Main Street Weekly Gold Survey, most retail investors remain bearish on the yellow metal, while the market professionals are undecided, caught in a statistical tie. This week, 292 people participated in Kitco’s online survey. Of those 140 participants, or 48%, are bearish on gold next week; 115 people, or 39%, are bullish on gold and 37 people, or 13%, are neutral.

The results of the professional survey was considerably closer. Out of 33 market experts contacted, 19 responded; of those, seven participants, or 37%, are bullish on gold next week. Six experts, or 31%, see lower prices and six people, are also neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Colin Cieszynski, senior market strategist at CMC Markets, said that he is bearish on gold next week as the data, in particular if Thursday’s nonfarm payrolls report shows the labor market is gaining strength. Positive data will provide the Fed the reason they need to raise interest rates in September, he explained.

Cieszynski also noted that gold’s technical picture also looks week as chances are growing that gold test recent lows.

“Technically, gold is positively awful and it looks like it wants to break $1,170 and retest the $1,140 double bottom,” he said.

Ken Morrison, editor of the newsletter Morrison on the Markets, agreed that technically, gold looks weak in the near term.

“I expect support at $1150 to be tested over the next week as the downtrend continues,” he said.

As for Greece, although market participants will be keeping an eye on negotiations over the week end as a default looms closer, Cieszynski said that it is become a nonissue.

“If people were really worried of a big contagion effect from a Greece default then gold would already be higher,” he said.

Chris Beauchamp, market strategist at IG Markets, agreed that Greece’s funding crisis won’t help gold as a last-minute short-term agreement will be made to avoid a default and push an ultimate resolution further down the road.

“Right now the balance of probability is that they will come to some sort of ‘face-saving’ agreement,” he said.

Beauchamp said that he is negative on the gold market because of the strength of the U.S. dollar. He added the greenback should strength this week on positive employment numbers.

“There is still a continuous desire to buy U.S. dollars on any kind of dips,” he said. “The Federal Reserve is the only central bank that is in a position to rate interest rates and that will continue to make the U.S. dollar an attractive investment.

Beauchamp added that Thursday’s nonfarm payrolls data would have to be “spectacularly” bad to change the current market bias and support gold.

However, not all market participants are bearish on gold Adrian Day, president of Adrian Day Asset Management, said that gold’s selloff is an overreaction to optimism of a potential funding deal made between Greece and its creditors as well as to expected interest rate hikes.

He added that he is bullish in the near-term as the market adjusts from over-sold levels.

He noted that the U.S. economy continues to only stumble along with no real sign of economic growth, and according to the last Federal Open Market Committee meeting, which was deemed by the marketplace to be dovish, is proof the central bank is extremely reluctant to hike interest rates.

“I expect a token minimum rate increase by the end of the year in an attempt by the Fed to retain some credibility, but no meaningful tightening any time soon,” he said.

Although all eyes will be on Thursday’s employment report, other market-impacting data next week will include May’s pending home sales report on Monday, June consumer confidence data on Tuesday, private employment and national manufacturing data both for June on Wednesday.

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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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