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Gold On The Menu Next Week If Trade Outlook Improves After G-20 - Analysts

Kitco News

(Kitco News) - Gold investors won’t get much of a break this weekend as the tone at the Group of 20 meeting Saturday could determine the precious metal’s short-term price action.

In particular, commodity analysts and economists are warning investors to pay close attention to the much-hyped dinner meeting between President Donald Trump and Chinese President Xi Jinping. For most of the year, the world’s two largest economies have been embroiled in an escalating trade war.

However, ahead of the Buenos Aires meeting, tensions appear to be easing between the two nations after President Trump who said that he is close to a trade deal with China, but added that he is not sure he wants to do a deal.

According to some analysts, the low market expectations could be positive for gold in the near-term. Jasper Lawler, head of research at London Capital Group said that any easing tensions in trade would be negative for the U.S. dollar and positive for gold.

“Although easing trade tensions will be positive for risk assets, this won’t affect gold too much as we think dollar weakness will be the more important driver for the metal,” he said.

Fawad Razaqzada, technical analyst at City Index, said that he is also paying close attention to the G-20 meeting as he expects that would take much to shift sentiment and expectations on global trade.

“Any sense of positive development following the dinner should be good news for gold,” he said. “It is in both countries’ interests to come up with a trade deal.”

Gold Needs New Momentum, Needs Higher Inflation

The renewed optimism in gold comes at a crucial time as the precious metal struggles to find momentum and a clear direction. Continuous strength in the U.S. dollar has pushed gold prices off its recent highs as the metal prepares to end the week in negative territory. February gold futures last traded at $1,226 an ounce, down 0.25% since last Friday.

Ken Morrison, editor of Morrison on the Markets noted that shifting positioning in gold indicates indifference in the marketplace.

“The most interesting feature in gold this week has been the sharp decline in open interest on incremental changes in price. In advance of first notice day on December Gold futures, market participants have opted to exit positions in futures instead of rolling positions forward,” he said. “…What makes this unique is that open interest has declined 25% and 130,000 contracts in the past 5 days, a very large change in a short time-frame.”

Colin Cieszynski, chief market strategist at SIA Wealth Management said that it is going to a significant event to drive gold out of its current sideways trend.

“There are just as many reasons to be bullish on gold as there are to be bearish.”

Christopher Vecchio, senior currency strategist at, said that he is also neutral on gold and added that the metal will continue to struggle as long as oil prices remain in its current downtrend.

The oil market is ending its second month in negative territory, down 22% in November. The oil market has seen a significant turn in fortunes as prices in early-October were trading at a four-year high.

Vecchio added that weak oil prices mean inflation expectations will remain low and with the Federal Reserve expected to continue to raise interest rates next month, real interest rates will continue to rise, increasing gold’s opportunity costs. Oil prices briefly dropped below $50 a barrel on Friday.

“For gold to really break out of its current range we need to see the Federal Reserve signal it will stop raising interest rates, oil prices need to stabilize and even rally,” he said.

Cieszynski also said that he thinks the gold market needs to see inflation push higher before prices enter a new bull market.

“A further correction in equity markets would provide a floor for gold, but won’t drive prices higher,” he said. “We need to see inflation pick up. Until that happens, we are going to be stuck.”

U.S. Economy Is Peaking

Although inflation remains elusive for gold, some analysts are not ready to give up on the metal just yet,saying that shifting interest rate expectations could prove to be an essential catalyst for a rally in the precious metal.

This past week gold prices spiked sharply after comments from Federal Reserve Chair Jerome Powell were deemed dovish by market participants.

“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy--that is, neither speeding up nor slowing down growth,” he said in a speech at The Economic Club of New York.

Many traders have taken Powell’s comments as a signal that the Federal Reserve could be close to ending its current tightening cycle. Although a December rate hike is still priced in, markets are now only expecting one rate hike next year, lower compared to the Federal Reserve’s forecast of three rate hikes.

One of the reasons many economists are starting to pare back their growth expectations for the U.S. is because the economy is seen as at full employment.

“The U.S. has pretty much reached full employment, so the growth prospects for the country will start slowing down. We are still optimistic on growth, but it looks like it has reached a peak,” said Bernard Dahdah, precious metals analyst at Natixis in a recent interview with Kitco News. “That will be positive for gold.”

While investors will be paying attention to global trade at the start of the week, the focus will quickly shift to the labor market with the government releasing November’s nonfarm payrolls report Friday.

While employment is expected to remain healthy, economists are forecasting a lower number than October’s 250,000 job gains. Along with labor market numbers, markets will also receive sentiment data from both the manufacturing and service sector.

Because the gold market continues to be stuck in a relatively narrow range, technical analysts have said that they continue to watch support coming in around $1,206 an ounce and resistance at $1,240 an ounce.

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