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METALS OUTLOOK: Gold Market To Focus On Central-Bank Meetings, Jobs Report, Physical Demand

By Debbie Carlson and Allen Sykora of Kitco News
Friday April 26, 2013 3:17 PM

(Kitco News) - Gold traders will have plenty on their plate next week with central-bank meetings and an always-important U.S. employment report, while also continuing to keep tabs on the strength of demand in the physical market.

The U.S. Federal Open Market Committee and European Central Bank meet. And, as always, traders will be watching economic data to see whether conditions are improving or deteriorating so they can gauge for themselves what officials may do with monetary policy down the road.

Traders also will keep monitoring reports about the voracious physical buying that was unleashed by a sharp price decline in mid-April. Some analysts have described this as pent-up demand in which buyers pounced when presented with lower prices. This helped gold rise for the week.

“The key for me is I want to see on these accelerated prices if that physical buying is going to continue, or if it’s price sensitive and is going to subside,” said Kevin Grady, president of Phoenix Futures and Options.

June gold finished with a gain for the week of $58, or 4.2%, to $1,453.60 an ounce on the Comex division of the New York Mercantile Exchange, helped by bargain hunting, particularly as the market took notice of the strong physical buying. The technical-chart posture also improved. In fact, the June contract has now risen in seven of the nine sessions since the historic sell-off of more than $200 an ounce earlier this month. May silver gained 79.8 cents for the week, or 3.5%, to settle at $23.758.

In the weekly Kitco News Gold Survey, out of 35 participants, 24 responded this week. Fourteen see prices up, while eight see prices down, and two see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

The FOMC meets on Tuesday and Wednesday. When gold first faltered early in the year, improving economic conditions had many financial-market participants thinking about an eventual FOMC withdrawal of the bond-buying program meant to push down long-term interest rates, referred to as quantitative easing. But much of the economic data for March was softer than expected, which, if it continues, likely would mean increased expectations for continued QE.

The soft March U.S. data included a rise of just 88,000 in non-farm payrolls and 0.4% decline in retail sales. A report on Friday showed the U.S. economy grew 2.5% in the first quarter, below forecasts mostly around 2.9% to 3%.

Traders will find on May 3 out if the labor market has picked up, when the Labor Department releases the April report. Consensus forecasts call for a rise of around 160,000 to 166,000 in non-farm payrolls, with the jobless rate expected to remain at 7.6%.

“The last time, we expected 195,000 new jobs and it was only 88,000,” Grady said. “So the jobs number is going to be paramount.”

Some of the other key U.S. economic indicators next week include personal income and spending Monday, Chicago Purchasing Managers Index and consumer confidence on Tuesday, ADP private-sector employment report and Institute for Supply Management manufacturing PMI Wednesday, and initial jobless claims Thursday.

Meanwhile, the European Central Bank’s governing council meets Thursday. Recently disappointing economic news in the 17-nation eurozone fueled expectations that the bank may cut interest rates further from the record low of 0.75%. If so, this could pressure the euro, which could impact gold due to its inverse correlation with the U.S. dollar.

“After the disappointing string of economic data over the past couple of weeks, the conditions set out by the ECB for a further easing in rates have likely been fulfilled,” said Alex Thorndike, senior trader for precious metals and foreign exchange with MKS Capital. “Many economists have now changed their tune from earlier in the year expecting a 25(-basis-point) cut in the main refinancing rate at the May meeting, but no change to the deposit rate.”

Meanwhile, traders will also keep tabs on the physical market. Demand for coins and bars worldwide has soared since the mid-April price plunge, which has helped unleash demand, a number of analysts have said. U.S. Mint gold bullion coin sales have hit 203,500 so far in April, the most of any month since December 2009.

“The reaction of the people (to the gold sell-off) was to start buying,” said Chris Blasi, CEO of Neptune Global Holdings. “The fundamentals of gold and silver haven’t changed. The global economy is still weak; banks are still printing money. The break gave people a chance to add to their positions. Now as gold climbs, you might start to see the momentum traders come in, which helps gold go higher.

“If we see a pullback, people who were buying before might come back in and buy again to buy it cheaper. The only thing that might be not so good for gold is if prices went flat. There are some people…who are waiting for a pullback. They’ve put half their money in, but are holding back for a $25, $30, $50 break. If we do pull back to the lows from last Tuesday (the $1,321 area), it’s going to be less shocking. When prices fell as hard as they did at the time, it was shocking.”

The mid-April price decline also came at a key period for seasonal demand due to spring weddings in India, as well as the May 13 Akshaya Tritiya festival, auspicious for gold buying. Buying surged there and in other emerging-market nations.

However, some observers also caution that a three-day holiday in China next week could at least temporarily curb some of the global buying. China is the world’s second-largest consuming nation, behind India, according to World Gold Council data.

“What I would be a little wary of is when they do go on holiday, a significant amount of demand will be pulled from the market and could induce bigger players to step in and sell,” Thorndike said. “Without the cushion of SGE (Shanghai Gold Exchange)/Chinese demand, we could swoop lower.”

Traders will also look closely at the most recent release of the Commodity Futures Trading Commission’s weekly commitments of traders data, said Bob Haberkorn, senior commodities broker with RJO Futures. The report is released late on Fridays and shows how speculators are positioned as of the previous Tuesday. Should the data show fresh buyers returning to the market, this would be a bullish sign, he said.

“Are there new longs coming into the market?” he asked rhetorically. “Is this (recent rally) a short-covering move? It could be a combination of both.”

As always, technically oriented factors could accelerate any moves.

"I think we're going to consolidate next week,” said Charles Nedoss, senior market strategist with Kingsview Financial. “It closed nicely over the 10-day (moving average) and consolidated there. It got a little ahead of itself at the 20-day (moving average).”
As of the Comex pit-session close, the 10-day average for June gold stood at $1,408.90 an ounce, while the 20-day was at $1,486.60.

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