Gold Traders To Eye Major U.S. Economic Data, Volatility In Stocks
(Kitco News) - Gold traders will be closely monitoring major U.S. economic data next week that includes a jobs report, looking for clues on future monetary policy, as well as watching to see whether the stock market settles down or continues to thrash about wildly, analysts said.
The most-active Comex February gold futures are headed for their third straight monthly gain, hitting a six-month high of $1,284.70 an ounce in overnight electronic screen trading Friday. At the peak, the contract had posted a gain of 4.8% for the month to date.
Analysts have cited a number of factors propelling the metal higher in recent weeks – ideas the Federal Reserve may become more cautious about any future rate hikes, a pullback in the U.S. dollar, and both weakness and massive gyrations in the stock market.
Kevin Grady, president of Phoenix Futures and Options LLC, said economic data may well play a significant role in what happens next.
“They [investors] are trying to reconcile a strong economy versus trade wars, the government shutdown and all of the geopolitical news that is out there,” Grady said. “The U.S. economy is doing very, very well.”
But traders will be watching to see if this remains the case.
With the New Year’s holiday, next week will be a short work week for most Americans. However, once the holiday is out of the way, markets get two of the most closely watched U.S. reports – the Institute for Supply Management’s manufacturing survey on Thursday and the U.S jobs report on Friday.
The employment report is always considered a “biggie” since a strong economy is dependent on people having jobs. Both reports are also considered significant since they are always among the first to offer a glimpse of what happened to the economy in the most recent month – in this case, December.
Strong economic reports tend to increase expectations for rate hikes, thus boost the dollar and undercut gold due to the strong inverse relationship between the two markets – and vice-versa. One of the exceptions is weak inflation data, since this reduces the possibility of rate hikes.
“The other big thing gold traders are focusing on is it looks like right now, maybe there will be one rate hike next year,” Grady said. “But there is no way they [policymakers] are
going to be on a progression to put in four rate hikes next year [as financial markets once thought].
“That could give a little bit of a boost to gold….If the dollar sells off a little without [the Fed] constantly raising interest rates, that could give gold the impetus to test $1,300.”
February gold has not been above $1,300 an ounce since June 19.
Some observers have commented that it wasn’t just the weakness in the stock market that led to safe-haven buying of gold lately, but some investors were also spooked by the volatility in equities, with steep plunges followed by huge rallies followed by more weakness, etc.
“Because we’ve been through the wringer, going into the new week, people will be very concerned about volatility,” said Phil Flynn, senior market analyst with at Price Futures Group.
Should calm return to the stock market, this could end up being negative for gold, at least in the short term, Flynn said.
“If we see continued turmoil, that will favor gold,” he said.