Prices were lower on Friday and on the week. The most-active April gold contract on the Comex division of the New York Mercantile Exchange settled at $1,659.50 an ounce, down 3.04% on the week. May silver settled at $32.726 an ounce, down 5.21% on the week.
In the Kitco News Gold Survey, out of 32 participants, 21 responded this week. Of those 21 participants, nine see prices up, while seven see prices down, and five are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Gold’s weakness this week was largely on the back of the Federal Reserve’s monetary policy statement on Tuesday, said Arnie Waters, chairman of A.L. Waters Capital. “A somewhat more hawkish tone, along with the Fed’s decision to avoid discussion of launching a third round of quantitative easing, were the two primary drivers behind gold’s decline this week,” Waters said.
The metal is seeking some sort of direction as it is torn between how investors envision its role, he added. “Those that see the precious metal as a safe haven against market turmoil have seen the recent pullback, in the ongoing instability in Europe, as a buying opportunity. Beyond that, others fear a general decline in asset prices, should the debt crisis deteriorate further in Europe. The likelihood of a dollar rally in such an event would also be a drag on gold,” he said.
The dollar rallied this week, adding to gold’s pressure. Because gold is dollar-denominated, normally the metal and the greenback will move in opposite directions of each other.
Analysts at BNP Paribas said the strength in the dollar comes from thoughts U.S.
economic growth is improving after strong payrolls and retail sales reports for February. The economic data has market participants “doubting whether the Fed would even maintain its commitment to zero rates through to 2014 let alone consider additional easing,” they said.
Gold was trading over $1,700 earlier this year on hopes of more quantitative easing, but has been removing that price premium as traders’ doubts of more stimulus increase.
Where the dollar goes next week will influence gold’s price direction, said Bob Haberkorn, RJ O’Brien senior market strategist. He said he thinks that the greenback might be due for a pullback after this week’s strength and that could be supportive for the metal.
“The dollar is getting a little high here. Europe is so far on the backburner,” he said, regarding the economic problems over there.
BNP Paribas suggested to watch speeches next week from Fed Chairman Ben Bernanke, New York Fed President William Dudley and Chicago Fed President Charles Evans who are “all among the more dovish camp,” for possible dollar impact. “However, unless we get a much stronger signal from the Fed that further easing may be needed, the dollar is likely to trade firmer on any further strong U.S. data – in particular labor market figures,” they said.
PHYSICAL DEMAND SLUGGISH
Several market watchers have pointed out in the past few weeks a general disinterest in physical buying of gold and that trend appears to be continuing. Analysts at Barclays Capital said it’s only when prices experience a sharp pullback does physical buying, particularly in Asia, reappear.
“Volume traded on the Shanghai Gold Exchange rose to its highest since the return of buyers in China following the Lunar New Year but still broadly remain below pre-holiday levels. Steadfast physical demand is missing, creating a vulnerable floor for gold prices,” they said.
The lack of physical interest compounded news overnight that India is increasing the tax on gold imports. Haberkorn said that information caused gold prices to start lower in the North American session Friday, which it was never able to shake for the rest of the day.
According to Bloomberg News, India’s government will tax gold bars and coins and platinum at 4%, starting April 1, up from 2% set in January. There was no change in the tax on silver. Along with China, India is one of the top two consumers of gold bullion.
Technical analysts are among those that see gold perhaps trying to probe a little more weakness next week, with $1,600 not unlikely. “The market has a little more room to go down before seeing a trend change. A test of technical support between $1,628 and $1,614 could occur early in the week leading to renewed buying interest,” said Darin Newsom, Telvent DTN senior analyst.
The recent weakness in gold is following seasonal price patterns, so it shouldn’t be completely unexpected, said Mark Leibovit, editor of VR Gold Letter. There is historical precedence for gold prices to fall from a high in February or March and then a rally to start after a summer low. For the pattern to run counter-seasonal, “we should see it in increasing upside volume and ultimately a breakout above recent highs,” he said
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