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Debbie Carlson

METALS OUTLOOK: Watch Retail Sales Data, Technical Chart Levels For Gold Next Week

By Debbie Carlson of Kitco News
Friday March 08, 2013 2:28 PM

(Kitco News) - After a much stronger-than-expected U.S. employment report, market analysts said they will keep an eye out for further proof of economic strength in the U.S., with the February retail sales seen as a harbinger.

Market watchers have been looking for signs so see whether the higher taxes in the U.S. have pinched consumers’ spending habits.

Additionally, participants are keeping an eye on the $1,550 to $1,560s an ounce area for Comex April gold futures after the market held support in this region.

April gold futures ended on firmer Friday, settling at $1,576.90 an ounce on the Comex division of the New York Mercantile Exchange, rising 0.293%, on the week. Most-active May silver ended higher on the day, settling at $28.948, up 1.61% on the week.

In the Kitco News Gold Survey, out of 33 participants, 25 responded this week. Of those 25 participants, six see prices up, while nine see prices down, and 10 see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Gold initially fell after a much stronger-than-expected U.S. unemployment report for February. According to the Labor Department, 236,000 jobs were created last month and the unemployment rate fell two percentage points to 7.7%, a five year low.

Several analysts said that the data suggest the initial worries about tax hikes and spending cuts that went into effect in January might not have scared off employers. Also, others pointed out the increase in construction jobs matches the strength in housing data, which has also come in stronger than expected.

Gold found support just above last month’s low of $1,554 and rebounded when stocks sold off following a rise in wholesale inventories but held much of the session just above unchanged.

Rich DeFalco of 76 Partners said the jobs figure was a game-changer for him and his view on gold. “If you had asked me yesterday, I would have said up. Today, I’m totally bearish. There are too many things working against it. That unemployment number was shocking,” he said.

He said with U.S. Treasury yields and the U.S. dollar rising on the economic news, some of the market events that have been supportive for gold aren’t anymore. “It’s the opposite of the last three to four years,” he said.

After strong employment and jobs data, market watchers said next week the critical report will be retail sales as that will give a sense of how Americans are spending – or not – money in the face of higher taxes and gasoline prices. MarketWatch calls for a rise of 0.4% in retail sales.

DeFalco isn’t so sure, especially with higher gas prices. “With gas prices near $4 a gallon, it cuts into people’s disposable income…  People don’t have as much to spend on entertainment. (Winston) Churchill said ‘we drink in victory and we drink in defeat’ but we don’t drink as much when gas is $4 a gallon,” he said.

Gold analysts said they’re going to keep an eye on Asian buying, which traditionally has been a strong support for gold. Volumes on the Shanghai Gold Exchange are strong, although premiums have fallen. UBS said the fall in premiums may be the result of easing of some supply bottlenecks, rather than reduced demand.

“Should volumes remain strong in the days and weeks ahead, this would mean that this year China is forgoing the historical pattern of a slowdown in gold activity after the Lunar New Year. March is typically a strong month in terms of gold trading on the SGE,” UBS said.

Analysts said they’ll also watch the resumption of Indian wedding season in April to see what the appetite for gold is after recent strength in the rupee.

Frank Lesh, futures broker at FuturePath Trading, said it’s possible that gold could continue to hold in this range as it mulls its next direction.

“Gold has spent the past week in consolidation, unable to penetrate resistance of $1,590, but able to hold above the low of $1,554 from two weeks ago. The technical picture is still negative, but at least the liquidation pressure has subsided, for now. Dollar strength and the perception that QE (quantitative easing) could end sooner - due to the improving economic picture - rather than later remain limiting factors for gold. It was investment demand that took this market to contract highs and I continue to wonder what catalyst will bring that demand back. I expect a sideways market and further consolidation for next week,” he said.

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By Debbie Carlson of Kitco News dcarlson@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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