Make Kitco Your Homepage

Gold’s Summer Lull Might Break Next Week, Investors Eye $1,280

Kitco News

Editor's Note: Kitco readers, have your say! Check out our newest feature – KITCO CHAT! – where you can share your comments and ask questions directly to us.

Gold’s Summer Lull Might Break Next Week, Investors Eye $1,280

(Kitco News) - As gold sits near the top of its latest trading range, hitting a new six-week high on Friday, analysts wonder if the yellow metal has more room to grow next week.

Some are feeling bullish on gold, saying that the metal is in an upswing as the U.S. dollar remains weak.

“The correction that we’ve seen in June and July has run its course,” Colin Cieszynski, chief market strategist at CMC Markets, told Kitco News. “The current level is $1,250-$1,265 and gold peaked above $1,265 today, with the next upside level at around $1,280, which is a possibility next week.”

George Milling-Stanley, head of Gold Strategy at State Street Global Advisors, said he also believes prices will strengthen. “Absent anything weird happening, I wouldn’t be surprised to see gold go up anywhere from $10 to $30 dollars next week.”

Gold prices rose steadily Friday with August Comex gold last seen at $1,268.10, up 0.64% on the day. Prices were supported by slightly downbeat U.S. GDP data and reports that North Korea fired a ballistic missile in what was described as an unusual late-night test. 

There is a lot of uncertainty in the world that is keeping gold well supported, Cieszynski added. “Whether it is in the U.S. with the Obamacare repeal or the Venezuela situation getting worse, or new sanctions between the U.S. and Russia,” he said. “Markets are looking like they are topping.”

On Friday, traders digested a 51-49 vote rejecting the bill to dismantle Obamacare, which was one of Donald Trump’s major campaign promises.

It will be interesting to watch what the Republican Party will do next week, said Bart Melek, global head of Commodity Strategy at TD Securities. There will also be political chatter about the U.S. debt ceiling and budget to keep an eye on, he added.

Melek remained slightly less optimistic on gold, projecting very little movement next week unless triggered by some major unexpected event.

“Gold right now is very close to what I call the upper hand of a trading range. I don’t see a lot more upside, so I’m looking for $1,268 next week,” he said. “We’ll need more fundamental news to get higher.”

Robin Bhar, head of metals research at Societe Generale, was in the same camp. “We will probably see gold tracking sideways next week, consolidating recent gains,” he said.

Due to low summer trading volumes, there is not much “impetus to move either up or down,” Bhar said, adding that resistance will be around “$1,260 next week, while downside is looking at around $1,240.”

Key Developments

This week’s main market movers were the Federal Reserve interest rate decision on Wednesday and the release of Q2 GDP data on Friday, which revealed a 2.6% growth.

The Fed's benchmark lending rate remained in a target range of 1% to 1.25%, with the central bank stating that it will begin to unwind its balance sheet “relatively soon.” 

Cieszynski noted that it is unlikely that the Fed will not do anything in September, adding that it will likely start the reduction of its $4.5-trillion balance sheet only in December. “I’m not convinced that there will be another rate hike this year, which will keep the dollar soft,” he said.

Macro Data In Focus

Some of the major macro releases next week include latest employment figures — July’s ADP Employment Report is due on Wednesday and July’s non-farm payrolls are scheduled for Friday.

Other notable U.S. reports include PMI Manufacturing Index, Factory Orders, ISM Non-Manufacturing Index and Trade Balance.

“Non-farm payrolls, ADP, PMI manufacturing might have an impact on the U.S. dollar, particularly if they change the perspective on whether or not the Fed might raise rates again,” Cieszynski said.

For the non-farm payrolls, traders will be watching if the numbers cool down from the robust 222,000 jobs gain reported for June. If so, Sean Lusk, director of commercial hedging at Walsh Trading, said that the current gold rally could have “legs.” However, if jobs growth surprises on the upside again, gold could be “susceptible to some back and fill.”

Overall, any significant disappointment in the data should get gold moving higher, convincing the market that the central bank tightening could be delayed, said Melek. In this case, gold could go up towards $1,280, he added.

On the overseas front, there is the Bank of England’s interest rate decision to monitor on Thursday, which will be followed by Governor Mark Carney’s press conference.

“Gold has been doing well this year despite the Fed raising rates. And that is because other central banks are still accommodating, mainly the ECB, the BoJ, and the BoE,” said Jasper Lawler, senior market analyst at London Capital Group.

“If we get some idea that the Bank of England is walking back the QE factor, it will be negative for gold. But, they may try to be as frightful as possible about Brexit implications, which would mean there wouldn't be any rush to end the QE, which will be good for gold,” Lawler explained.

A mini-tech sell-off in the equity market has also been supporting gold and may continue into next week, he added.

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 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.

Precious Metal Charts

Follow Kitco News

Silver Yin Yang - Chinese New Year