Federal Reserve Minutes, China To Be Keys For Gold Traders Next Week
Washington (Aug 14) Gold traders will be watching to see if there are any further price-supportive developments out of China next week, or if instead the Federal Open Market Committee says anything to rain on the yellow metal’s parade.
Gold bounced this week after being on a mostly lower trajectory since mid-June, getting a lift when China roiled global markets by devaluing its currency. By the end of the week, however, it appeared the situation was stabilizing, with Chinese authorities on Thursday saying there was no reason for the yuan to fall further.
Should the issue fade from the forefront, observers said, the gold market will resume fretting about whether the Federal Open Market Committee will hike interest rates in September.
Comex December gold settled Friday at $1,112.70 an ounce, a gain of $18.60 for the week. The contract got as high as $1,126.30 on Thursday, its most muscular level since July 20. The December futures rose five straight trading days before the winning streak was broken on Thursday.
September silver futures added 39.2 cents for the week to $15.213 an ounce. They peaked at $15.585 Friday, a level not seen since July 13.
The Kitco News weekly online survey shows that the majority expects to see higher prices in the near-term. This week, 316 people participated in the survey. Of those, 181 people, or 57%, said they are bullish on gold next week; 88 participants, or 28%, are bearish; and 47 people, or 15%, are neutral.
Seven out of 14 respondents, or 50%, in the Wall Street survey said they expect to see higher prices next week. Five professionals, or 36%, said they see lower prices, and two people, or 14%, are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Traders will be on the lookout to see if anything else noteworthy develops in China, said Phil Flynn, senior market strategist with Price Futures Group. The devaluation was seen as a sign that Chinese authorities are worried about the health of the country’s economy.
“China is going to be the No. 1 factor for gold next week mainly because the devaluation of their currency sparked interest in gold as a safe haven again,” Flynn said. “Just when you thought gold would never act as a safe haven, the concerns about China have reignited the buying in gold.”
That helped the metal fly even in the face of a World Gold Council report showing that second-quarter gold demand fell 12% year-on-year to 914.9 metric tons, he added.
Assuming the Chinese situation does not flare up again, most analysts say the market will increasingly focus on expectations for the FOMC, which holds a policy meeting next month. The Federal funds futures have oscillated lately between factoring in a greater- or smaller-than-50% chance of a tightening in September.
“The biggest factor will be Wednesday’s Fed meeting minutes,” said Mike Dragosits, senior commodity strategist with TD Securities. The minutes are from the July 28-29 meeting, after which there was no news conference.
“So we’re looking towards the minutes to shed some light on how the Fed is thinking about a potential September rate rise…,” Dragosits explained. “If we do get quite a bit of hawkish sentiment coming out of those minutes, I think (Treasury) yields will probably and that would be a negative story for gold prices.”
Conversely, dovish minutes could offer some support, analysts said.
Additionally, traders will keep close tabs on U.S. economic data. Key reports next week include the New York Federal Reserve’s Empire State manufacturing survey on Monday, housing starts on Tuesday and consumer inflation on Wednesday. Data next Thursday include jobless claims, the Philadelphia Fed’s business survey and sales of existing homes.
“There will continue to be a focus on what the Fed is going to do at its September meeting,” said Bill O’Neill, one of the principals with LOGIC Advisors. “That is going to be the underlying factor pretty much across the board as far as commodity markets are concerned, gold in particular.”
Besides the Fed, traders also will keep an eye on any comments out of the European Central Bank, in case policy-makers should hint at increased bond buying known as quantitative easing, Flynn added. “More QE in Europe should mean more support for gold,” Flynn said.
As always, money flows themselves will be monitored, O’Neill said. Data on the website of the world’s largest gold exchange-traded fund, SPDR Gold Shares, show that holdings of gold jumped 4.18 metric tons on Wednesday.
“If we were to get a return of that, it would be a plus for the market,” said O’Neill.
Source: KitcoNews
