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Allen Sykora

METALS OUTLOOK: Gold Market To Eye Italian Elections, Bernanke, Data, Sequestration

By Allen Sykora of Kitco News
Friday February 22, 2013 2:50 PM

(Kitco News) - There certainly won’t be any dearth of events for the gold market to focus on next week.

“This weekend, we have Italian elections, which could influence the currency market and have some kind of influence on the precious (metals),” said Afshin Nabavi, head of trading with MKS (Switzerland) SA.

In particular, the market will be watching the results to see if it appears the government will remain committed to austerity measures necessary for bailouts. In particular, gold often moves with the euro and inversely to the U.S. dollar.

Then, all eyes and ears will be on Federal Reserve Chairman Ben Bernanke starting Tuesday when he begins two days of congressional testimony on the economy. Traders will be especially anxious to hear what the Fed chairman has to say since gold sagged in recent weeks as investors returned to equities on ideas the U.S. economy is gaining traction. Then, minutes of the January Federal Open Market Committee meeting this week showed some members may want to “vary” the pace of bond and mortgage-backed-securities purchases that constitute quantitative easing, adding to the pressure on gold.

Likewise, traders will have a heavy slate of U.S. economic data to use as a guide in trying to gauge what the Fed might do next. The reports include consumer confidence, home sales and manufacturing. On top of all that is options expiration for Comex gold and the approach of the March 1 deadline for a still-deadlocked Congress to make decisions on spending issues to avoid automatic budget cuts, or sequestration.

“We are chock full of stuff next week,” said Charles Nedoss, senior market strategist with Kingsview Financial.

“The biggest things will be Bernanke and the sequester,” said Sean Lusk, precious-metals analyst with Ironbeam.

This week, April gold futures lost $36.70 to $1,572.80 an ounce on the Comex division of the New York Mercantile Exchange, with declines exacerbated when sell stops were hit. These are pre-placed orders activated when certain chart points are hit, either to kick traders out of positions going against them or to establish new positions as the market breaks. March silver lost $1.389 to $28.46 an ounce.

The bulk of the participants in the weekly Kitco News gold survey look for gold to either stabilize or bounce next week since major chart support is holding so far around the roughly $1,525 area and due to perceptions that the market may be “oversold” in the near term. Of 21 participants who responded, 11 see prices up, seven see prices sideways and three look for the recent slide to resume next week.

In the early part of the week, traders could even positions ahead of some of the upcoming events, such as Bernanke testimony that begins on Tuesday, Lusk said. “Along with that, I think we’re a little oversold to the downside here,” he added, particularly since some of the recent data, including weekly jobless claims, were soft.

Bernanke is scheduled to speak before the Senate Banking Committee on Tuesday and the House Committee on Financial Services Wednesday. Both appearances are at 10 a.m. EST. Traders will be watching to see if they can expect accommodative monetary policy, which supports precious metals, to last for some time yet.

Likewise, traders will be eyeing economic data to see whether it comes in soft and thus would seem to favor continued accommodation, or vice-versa.

Should data such as housing be weak, this could prompt short covering in gold, said Bart Melek, head of commodity strategy with TD Securities.

“A less rosy economic picture may convince some of those traders that went short gold on the basis that QE will end early, to reduce these bets and reduce the opportunity cost of holding the metal,” Melek said. “In addition, as more future systemic risks associated with these massive Fed asset purchases is factored into the market consciousness, investors may heed the concerns of the FOMC hawks and start buying gold as a hedge with more enthusiasm.”

And, others said, if the data on balance were to be strong, then this would just add to worries of some about an early exit from QE by the Fed.

Some of the closely watched U.S. economic reports on Tuesday include the December Case-Shiller home price index, February consumer confidence and new-home sales, followed by January durable-goods orders Wednesday. Thursday brings weekly jobless claims, a revision to fourth-quarter gross-domestic-product growth and the February Chicago Purchasing Managers Index. Friday brings January personal income, consumer spending, the University of Michigan consumer-sentiment index and the Institute for Supply Management’s February manufacturing survey.

Normally, the monthly jobs report is due out on the first Friday of the month. However, the Labor Department has said the February report will instead be on March 8.

Meanwhile, Lusk said, some safe-haven buying may occur ahead of the so-called U.S. sequestration. This is the term given to the automatic spending cuts that would kick in on March 1, which happens to be next Friday, if Congress and the White House do not reach a budget deal. Markets are worried this will mean a drag on U.S. economic growth.

“It looks more and more like the sequester is going to come in,” Lusk said. 

Nabavi added that the market will be on the lookout to see whether physical buying will help put a floor under the market. Good physical buying has been occurring this week, although it was overwhelmed by the pressure from speculators, much based on technical-chart weakness, he said.

“If the physical buying was not there, gold would have been much, much, much lower,” he said.

By Allen Sykora of Kitco News; asykora@kitco.com

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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