Gold Market To Watch For Economic Data In Busy Week

(Kitco News) - A busy week is shaping up for the gold market for next week, with several U.S. economic reports set for release and a few central bank meetings.

Market watchers will look to see if the recent strength of U.S. economic data continues and if there are any hints out of the U.S. Federal Reserve’s monetary policy meeting. Also next week, a new chief for the European Central Bank will be installed and he will give his first official comments to the world.

Gold saw a strong rally this week, so traders will look to see if the market can hold its gains or if it will succumb to profit taking. On Friday, gold saw a minor pullback as bulls sought to pocket some profits ahead of the weekend. 

On the week, December gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,747.20 an ounce, up 6.8% on the week. December silver settled at $35.2880 an ounce, up 13.1% on the week. 

In the Kitco News Gold Survey, out of 34 participants, 26 responded this week. Of those 26 participants, 19 see prices up, while five see prices down and two see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.

Gold’s move over $1,700 was considered bullish by those looking for higher prices, and holding over that area will be important to keep the momentum going, several technical chart-based analysts said.

Also, analysts said as the markets get over their initial reaction to the European Union summit, they will revert back to their concerns about the world’s fiscal health overall. The dollar had strengthened up to the summit as a safe-haven buy, but many analyst expect in the short term that the dollar’s strength will be muted. That should benefit gold, said Jeffrey Nichols, senior economic adviser to Rosland Capital and managing director of American Precious Metals Advisors, who sees gold’s prices rising in the weeks ahead.

“If Europe’s debt crisis subsides, the dollar will no longer benefit from its safe-haven role. If it continues to worsen, investors, particularly in Europe, are likely to accelerate their rush into physical gold, buying bullion coins, small bars, and ETFs, as they did in mid-2010 when Euro-angst was, like now, at a feverish pitch. But, either way, as traditional physical demand continues to grow, especially in Asia and from central banks in that region and elsewhere, gold is increasingly going into stronger hands that are less likely to sell even at much higher prices,“ Nichols said.

That doesn’t mean in the short term that gold won’t fluctuate, he warned. “Short-term trading in derivative markets may, at times, produce a great deal of gold-price volatility but, in my book, it does not affect the long-term price trend. What governs the price of gold over the long term are the market’s real-world supply and demand fundamentals - and these have been decidedly bullish . . . and are becoming even more so.“

Rich DeFalco, president West Cooper Asset Management, said he’s more neutral on gold for next week, but with a bullish bias. “The EU news was a giant Band-Aid that they put on themselves…. In the grand scheme of things, not much has changed. Gold will continue to play a safe-haven role, but overall I don’t see a lot of movement,” he said.

What could support gold is if the ECB embarks on a quantitative easing-type program. “If the ECB starts printing money and buys the debt to absorb the losses, that would be supportive. But countries like Germany don’t like doing that,” DeFalco said.

FOMC, ECB MEETINGS NEXT WEEK

With the EU summit over, market participants will turn to the next meetings slated to take place. The Federal Open Market Committee will meet on Tuesday and Wednesday – Federal Reserve Chairman Ben Bernanke will speak following the meeting. No changes in policy are expected.

Jean-Claude Trichet steps down as the head of the European Central Bank next week and makes way for Mario Draghi, who takes helm and has his first news conference on Thursday.  The Group of 20 nations meets Nov 3-4.

Several analysts said what should keep the dollar under pressure for the short term – which is normally supportive for gold – is that U.S. economic data has “substantially surprised to the upside,” as Brown Brothers Harriman puts it. 

BNP Paribas said after a strong showing in third-quarter U.S. gross domestic product on Thursday, the appetite for riskier assets make continue next week. They point to the potential for better-than-expected data from Monday’s Chicago Purchasing Managers Index and Tuesday’s Institute for Supply Management manufacturing figures for October as catalysts, saying that the strong rebound seen in the Philly Fed index for October suggests this is plausible. 

BBH admitted that U.S. growth is still too slow to handle the excessive economic capacity, but given the gains in economic data and the potential for policy support from China regarding Europe, the dollar in the short term should be under pressure and risk appetite should gain ground. 

Friday brings the monthly unemployment figures, which can have a big impact on gold prices, too.

Source; http://www.kitco.com/reports/KitcoNews20111028DeC_metalsoutlook.html