Editor's note: Catch the Latest Happenings with Kitco Video News!

Debbie Carlson

METALS OUTLOOK: Consolidation Possible For Gold Next Week

By Debbie Carlson of Kitco News
Friday May 3, 2013 2:16 PM

(Kitco News) - After two weeks of gains following the sharpest drop in gold prices since 1980, the yellow metal could see prices consolidate and perhaps probe slightly lower levels next week as the market looks for direction.

June gold futures fell Friday, settling at $1,464.20 an ounce on the Comex division of the New York Mercantile Exchange, and were up 0.79% on the week. May silver rose Friday, settling at $24.014 an ounce, up 0.95% on the week.

In the Kitco News Gold Survey, out of 35 participants, 27 responded this week. Of those 27 participants, 10 see prices up, while 12 see prices down and five see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Gold prices bounced sharply off the mid-April lows, but several analysts said the market appeared to be losing some steam in the $1,480s area, basis the June Comex futures. That contract rose as high as $1,487.20 in overnight trade Friday, but drifted off that high as North American trade got underway.

Technical-chart analysts said the $1,480s would represent the first ceiling for gold to try to break through if further gains were possible. Instead, gold initially weakened, pressured by a surprisingly strong U.S. monthly jobs report, then came off its lows.

According to the Department of Labor, employment rose by 165,000 jobs in April and the unemployment rate fell to 7.5% from 7.6%, versus an expected rise of about 135,000 and a jobless rate of 7.6%. The rate rose even as the labor force size increased. Other positives in the report were the upward revision to the March and February reports. The downside was the reduction in hourly work week, which suggests more part-time jobs were added. The jobless rate of 7.5% is lowest level since December 2008.

Several analysts said the stronger jobs figures reinvigorated ideas that the Fed might end quantitative easing earlier, which is why gold fell right after the data. “It’s all about easing right now. If there are ideas that there will be less easing, that’s ultimately bearish for gold,” said Kevin Grady, owner, Phoenix Futures and Options.

Analysts at R.J. O’Brien said while the job growth was higher than expected, in coming months that is likely to change. “The expansion is projected to cool this quarter before picking up again as the cuts continue, consumer spending eases and companies pull back,” they said.

Still, they noted: “The dominant theme is the healing in the economy, and the traction the Fed is gaining.”

R.J. O’Brien noted the Federal Reserve’s comments after this week’s Federal Open Market Committee meeting could be construed as keeping the door open to continued stimulus. The central bank said it will keep its $85 billion monthly bond buys to increase growth and jobs and will alter the bond-buying program as necessary. “Officials at the Fed are still looking for greater progress in reducing unemployment,” R.J. O’Brien said.

Grady found gold’s rebound on Friday in the face of new records by the Dow Jones Industrial Average and Standard & Poor’s 500 stock index “interesting,” but he said it was likely position-squaring ahead of the week. The strength in equities has been a bugaboo for gold.

“The strength of equities has pulled dollars from commodities. And even if you don’t believe in the equity strength in your heart, if you’re a fund manager you have to keep capital engaged,” he said.

For next week, analysts said they’ll watch the action in the physical market, which was responsible for gold’s move off its mid-April lows, and whether gold exchange-traded funds continue to see outflows. Those outflows have capped price gains. Frank Lesh, futures broker at FuturePath Trading, said market activity could be volatile next week.

“Short-term traders dominate the market right now, and they are only focusing on the price action, not the price relationships with other markets. This is why we now see gold and the dollar move up or down together. Futures traders now hold the largest short position they have had in a long time. I don’t believe that the physical buyers have enough capital to continue to support this market or replace the capital that is fleeing ‘paper gold….’ With the current trading environment, gold can move up or down $50 to $100 at any time,” he said.

George Gero, vice president with RBC Capital Markets Global Futures and a precious metals strategist, said he sees higher gold prices next week and there are two areas where he will turn his attention: interest rates and physical demand. U.S. Treasury interest rates rose on the back of the jobs data, meaning that prices fell.

Grady said in the short term gold remains in a bear market until it can break above the $1,525 level. When gold fell through this level, it triggered the massive slide in prices in mid-April.

“I believe in the long-term story for gold, but the key for gold is timing and right now there aren’t a lot of positives out there for gold,” Grady said.

He said if the jobs data was lower than expected, that might have triggered a rally to $1,525. With this key report out of the way and the Federal Reserve and European Central Bank meetings over, there’s not much to stoke a bullish outlook, he added.

“For gold to perform, it really needs to start breaking through these resistance levels,” he said.

Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It's free, too. My account is @dcarlsonkitco

 

By Debbie Carlson 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.

Precious Metal Charts

Click to see this Precious Metal chart
  1. 24h
  2. 30D
  3. 60D
  4. 6M
  5. 1Y
 

Interactive Chart