The retreat after Friday’s jobs data was seen by many as a buying opportunity and the market trimmed its gains substantially by the close.
Uncertainty surrounding the unfolding tensions in Libya and the strength in crude oil has kept a bid in the gold market and will likely be a main driver next week. Also, the U.S. dollar index reversed course intraday and gave back the majority of its early gains, which also was supportive to gold prices.
Looking ahead, Jim Steel, vice president at HSBC, said that gold market action would be a "balance between geopolitical and sovereign risks and ideas that the Fed and other central banks will tighten policy. I think it will be a see-saw between those [bullish and bearish] factors."
June gold prices on the Comex division of the New York Mercantile Exchange settled at $1,428.90 an ounce, down $11.00 on the day, but only down $1.30 on the week. May silver settled at $37.732 an ounce, down 15.6 cents on the day, but up 68.3 cents on the week.
Friday's surprisingly positive U.S. jobs data, which revealed a 216,000 jump in non-farm payrolls and a decline in the overall unemployment rate to 8.8%, triggered speculation that the U.S. Federal Reserve may shift out of its accommodative monetary policy stance perhaps sooner than some had expected. Generally speaking, the Fed's easy monetary policy has been a bullish factor for gold as it is seen as having an inflationary impact.
While the jobs data knocked down gold hard early on Friday, "many say the drop as a buying opportunity," said Carlos Sanchez, director of risk management at CPM Group. While Sanchez conceded that the employment news was stronger than anticipated, he added "many [traders] digested the figures and said 'hey, it's a Friday, we aren't going to be short over the weekend.'"
Gold watchers remain focused on the evolving events in Libya and the potential impact on crude oil supply. The energy markets continued to firm late in the week, with May New York Mercantile Exchange crude oil futures climbing to a high at $107.93 per barrel in early afternoon trading. Higher oil prices are seen as inflationary, which is bullish for gold. A rise in energy prices is also perceived as negative for the U.S. growth outlook, as consumers have to shift more consumption toward gasoline prices at the pump.
HSBC's Steel agreed that for gold, "oil prices will be a big leader and also any movement in the U.S. yield curve." He explained that a flatter U.S. yield curve could be "negative for gold" as it could suggest that "Fed policy might be tightening."
Shifting to the U.S. domestic scene, Sanchez highlighted the ongoing budget wrangling within the U.S. Congress as a factor to watch for gold. "The political parties are trying to come up with a 2011 budget, but it's been delayed. If there is no resolution and they have to extend the deadline, it will continue to concern investors who have bought into U.S. Treasuries," Sanchez said.
Global investors continue to eye the large deficits in the U.S. and with the "rising costs of health care and Social Security, there are concerns the deficit is eating into the [future] economic prospects for the U.S., which would push investors toward gold," Sanchez said.
Looking ahead to next week's U.S. economic calendar, traders will be focusing on the Institute for Supply Management’s non-manufacturing data and the March FOMC minutes, both due out Tuesday, and then the weekly jobless claims release on Thursday.
Moody's Analytics economists wrote in an April 1 research note: "A light week on the data calendar will shift the focus to the Fed. Central bankers have been sending conflicting messages, and the divisions are likely to grow more apparent, as the labor market gains momentum and financial markets remain strong despite geopolitical uncertainty. Important releases this [coming] week include jobless claims and the ISM nonmanufacturing index. The latter probably slipped in March, although our forecast still allows for solid expansion in the service sector. Jobless claims are expected to continue falling as the pace of layoffs slows."
Overall, the gold market remains mired within recent ranges. Since early March, Comex June gold has traded between roughly $1,450 on the upside and $1,382 on the downside. Nonetheless, CPM Group's Sanchez said "we are bullish over the next few weeks with new record prices for gold and new multi-year highs in silver." For the latest updates PRESS CTR + D or visit Stock Market news Today
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