Prices rallied sharply on Friday to flip to a gain for the week after gold was behind as of Thursday. The Comex August contract rose $26.70 Friday to settle at $1,592 an ounce, which was a gain of $13.10 from a week ago. September silver climbed 20.8 cents Friday to close at $27.369, posting a weekly gain of 44.90 cents.
Gold prices were lifted by second-quarter GDP data from China. According to figures released by Chinese authorities, the world’s second-largest economy grew 7.6% in the second quarter. This is the slowest pace of growth in more than three years. However, the data was in-line with expectations.
Gold came under pressure earlier in the week as hopes of further monetary easing from the Federal Reserve faded. The minutes of the Fed’s most recent monetary policy meeting, which were released earlier in the week, showed that the central bank is not likely to implement additional monetary easing measures any time soon.
The gold market will be watching next week for any clues on whether to expect further Federal Reserve monetary easing, with much of the focus likely to be a slew of U.S. economic reports and congressional testimony on the economy from Fed Chairman Ben Bernanke.
Technically, prices bounced “pretty good” Thursday from near-term chart support in the $1,550-$1,560 area, “You see some bottom feeding, prompted by weaker (economic) numbers all the way around,”
As for next week, of the 19 participants who took part in the Kitco News Gold Survey this week, 10 see prices up, while four see prices down and five see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts. Several said this outlook may well hinge on whether the news flow next week supports or undercuts the case for further Fed easing.
The research departments of a number of investment banks have said they see potential for a third round of quantitative easing down the road, assuming U.S. economic data remains soft. This is the buying of Treasury securities in a bid to push down long-term Treasury yields.
At the June Federal Open Market Committee, officials instead extended the less-gold-bullish program known as Operation Twist, in which officials sell short-term securities to buy long-term ones, thereby not expanding the central bank’s balance sheet.
Still, hopes for so-called QE3 have not died since U.S. economic data remains on the weaker side. Since the last FOMC meeting, the government reported that June non-farm payrolls rose only 80,000. This meant jobs growth was less than 100,000 in each month during the second quarter.
Against this backdrop, Bernanke is scheduled to appear before a pair of congressional panels Tuesday and Wednesday mornings to testify on the economy. Markets will be watching to see whether he appears less dovish than in the past, which would be seen as a tilt toward more aggressive monetary accommodation.
Often, traders have tended to take positions ahead of Fed releases or appearances in which market participants have factored in a greater likelihood of more QE.
Gold’s performance during the latter part of next week no doubt may hinge largely on just what Bernanke ends up saying, Should the Fed chairman disappoint the market, gold may well come back down, as it has after prior QE false starts, the trader added. “We don’t expect him (Bernanke) to say anything that he hasn’t before, but there is always that hope, I guess,
Additionally, the market will be scrutinizing U.S. economic data next week to see whether they hurt or support the odds for more QE.
“There are a lot of numbers to trade off next week,” If we see weak numbers, we’ll have people building the case again for QE.”
The calendar includes retails sales and the Empire State manufacturing survey on Monday, Consumer Price Index and industrial production on Tuesday, followed by housing starts and the Federal Reserve Beige Book report on Wednesday. Reports Thursday include weekly jobless claims, existing-home sales and the Philadelphia Fed survey. One of the bigger reports early in the week will be June retail sales on Monday. The consensus forecast is for a rise of 0.3%, or 0.1% excluding autos
The gold markets had a fairly calm week all things considered over the last five sessions. The market is showing obvious support at the $1550 area, which when zoomed in on shows a significant amount of support just below at the 1540 level also. The recent action over the last year, does suggest that we were trying to form some type of triangle but we have certainly gone far too sideways for consideration of that shape anymore.
It now looks as though we are trying to build some type of base in this area, and as such we prefer buying. We think that the markets will have to break down below the $1500 level in order to get bearish for the long-term. However, if we get above the $1650 level we are willing to go along of this market and aim for the $1800 level. In the meantime, we think a lot of choppiness will continue.
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