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Analysts Expect More From Gold, Next Week’s Range: $1,300-$1,330

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Analysts Expect More From Gold, Next Week’s Range: $1,300-$1,330

(Kitco News) - With gold trading firmly above $1,300 Friday, analysts remain optimistic about next week’s projections, with a majority looking for the yellow metal to make new gains.

To most analysts, gold seems to be in overbought territory, but its downside seems limited, especially because of everything that is going on…

“Political risk both related to North Korea and the U.S. debt limit remain high and the soft nonfarm payrolls report may keep the USD [U.S. dollar] on its back foot,” Colin Cieszynski, chief market strategist at CMC Markets, told Kitco News. “Gold may settle into a $1,300 to $1,330 range in the near term. It had a great run lately, but is getting overbought technically.”

On Friday, gold rallied after the U.S. economy created only 156,000 new jobs in August versus the expected 180,000. The Bureau of Labor Statistics also said that the unemployment rate inched up to 4.4%, while July’s figure was revised down to 189,000 from 209,000. 

In response to the data, gold jumped briefly to a fresh 11-month high at $1,334 and then cooled off. On Friday, December Comex gold was last seen trading at $1,329.40, up 0.54% on the day. 

Fed Outlook To Drive Gold

After digesting the jobs report, economists warned that lack of wage growth, which remained at 2.5% on an annual basis for the fifth consecutive month in August, could impact the Federal Reserve’s rate hike plans.

The Fed needs to see some pickup in inflation before continuing with its hikes and August’s wage numbers failed to show that, said Avery Shenfeld, chief economist at CIBC Capital Markets. Before hiking again in December, the Fed will likely want proof of some “steady upside in the remaining core PCE readings for 2017,” he added.

Friday’s U.S. jobs data is one major motivator to hold onto gold next week, said Jasper Lawler, head of research at London Capital Group LCG, as it encourages greenback weakness.

Bart Melek, head of global strategy at TD Securities, expressed a similar view, noting that the Fed is not looking to hike as aggressively for the rest of the year. “Increasingly the market is coming to a conclusion that the U.S. central bank is unlikely to get aggressive. Especially after today’s payroll numbers, which came in below expectations,” Melek said.

Also, it is important to watch for the aftermath of Hurricane Harvey, which could spell out less monetary policy tightening this year.

“Hurricane Harvey’s impact likely means that there will be some job losses in Texas and lower economic activity. At this point, the Fed may still raise rates in December, but if we get bad data, which is very likely, the market may revise its rate hike expectations,” Melek added.

More news related to Hurricane Harvey’s recovery efforts could have a significant impact, confirmed Cieszynski. “Focus will be on budget and hurricane relief. Harvey could have an impact on budget talks. The need for disaster relief money could help to break jam surrounding debt ceiling debate,” he explained.

What To Watch

Next week will be primarily dominated by Fed speak in the U.S., with traders looking for hints as to what the Fed might do with its balance sheet as well as rates.

“There are a number of Fed speakers next week, which could impact the U.S. dollar and gold,” Cieszynski said.

Some of the speakers include Fed Governor Lael Brainard, Dallas Fed President Robert Kaplan, Minneapolis Fed President Neel Kashkari, Cleveland Fed President Loretta Mester, Fed President of New York William Dudley and Philadelphia Fed President Patrick Harker.

In terms of U.S. data, it is good to keep an eye on PMI Services Index and ISM Non-Manufacturing PMI Index being released on Wednesday.

But, since next week is fairly light on data and North American markets are closed on Monday for Labor Day, the focus will largely fall on overseas events.

Lawler said he sees the European Central Bank (ECB) meeting on Thursday as the main risk event for gold next week. “If the ECB does give any hint of tapering, it could be interpreted as a gold negative event,” he said. “The ECB meeting will have a dovish tilt. We tend to think that probably the ECB will eventually hint at tapering, but it will delay that talk past German election on September 24.”

The Bank of Canada will also be making an interest rate decision on Wednesday, with some economists calling for another rate hike.

Another important trigger for gold next week is likely to be Chinese macro data. “One factor out there in terms of global risk is China and how it is impacting commodities. If you look at copper, there is a surge in industrial metals and that is spilling over into precious metals. If we see Chinese data start to disappoint then it might weigh on copper and if copper turns lower it could bring gold down with it,” Lawler pointed out.

China just saw another set of strong manufacturing PMIs this week and next Friday, traders will get a peek at the country’s trade data, which could reveal the strength of commodities demand in August, economists from Capital Economics wrote in their weekly report.

Key Levels For Gold

Analysts are in consensus that gold will not drop below $1,300 next week, and a majority of those interviewed pointed to a range between $1,300 and $1,330 levels.

“If we can't close above $1,325 this week, I expect a pullback and support in around the $1,308 area. $1,300 was a big level. I tend to think we won’t get down there again,” Lawler said.

Melek also pointed to $1,325 as being a key level to overcome on the upside. “As we move into September, we probably see it as a new upper bound,” 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.
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