Gold Price To Keep "Hugging" $1,100 Level; China & USD To Drive Prices

New York (Jan 8)  Investors should continue to monitor the economic uncertainty in China and outside markets to determine if gold’s momentum will continue for another week, according to some analysts.

The gold market is ending the first week of the new year on a strong note as February Comex gold futures ended Friday’s session at 1097.90 an ounce, up more than 3% on the week. This is the yellow metal’s best weekly performance since mid-August.

While gold saw an impressive rally, silver underperformed as it was unable to close Friday above the psychological $14 an ounce area. March Comex silver futures showed a gain of less than 1% for the week.Gold and Dollar Bills

While gold hit a bit of a speed bump Friday, following a massively stronger-than-expected employment report, for some analysts, the fact that it was able to hold near-term support bodes well for prices in the near-term. Not only did gold bounce higher after hitting a session high of $1,091.50 an ounce, but it managed to near $1,100 an ounce, an area many analysts have called “a line in the sand” for any potential uptrend.

According to the latest Kitco News Wall Street vs. Main Street Weekly Gold Survey, a clear majority of retail investors and analysts expect to see higher prices in the near-term. This week, 464 people participated in Kitco’s online survey. Of those, 304 participants, or 66%, said they are bullish on prices next week; at the same time, 117 people, or 25%, are bearish; and 43 people, or 9%, are neutral.

Although not quite as optimistic as retail investors, most market professionals also expect prices to move higher in the near term. Out of 34 market experts contacted, 18 responded, of which 10, or 56%, said they expect to see higher prices next week; four professionals, or 22%, said they see lower prices; and four analysts are neutral on gold. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

While some analysts are suspicious of a rally based on safe-haven flows, the economic turmoil in China, which threatens global equity markets, does not appear to be abating anytime soon. Analysts noted that this should continue to support prices in the near-term.

“What gold really loves is any sign that a central bank is losing control,” said Matthew Turner, commodity analyst at Macquarie Research. However, he added that he could see gold falling next week as some stability starts to emerge.

Ronald-Peter Stoferle, fund manager at Incrementum AG and author of the In Gold We Trust report, said that he is bullish on gold as it looks like the market has put in its bottom, but added that he would like to see stronger signs that this rally has more long-term momentum.

“Our studies show that geopolitical issues are only short-term drivers for gold. What we really want to see is inflation start to pick up,” he said. However, inflation remains subdued as the recent nonfarm payrolls data showed stagnant wage growth for December.

He added that silver’s underperformance against gold also does not bode well.

“Every time there is a long-term bull market in gold, silver outperforms and we haven’t seen that yet,” he said. “I remain cautiously optimistic that gold can move higher.”

Phil Streible, senior commodity strategist at RJOFutures, said that he could see gold prices “hugging” either side of $1,100 in the near-term. He added that he would expect China’s central bank to take the weekend to come up with a plan to stabilize its markets. If that happens, he continued, the U.S. dollar will probably strength, which would be negative for gold.

Colin Cieszynski, senior strategist at CMC Markets, said that he will also be watching the U.S. dollar next week and is optimistic on gold as it appears the greenback is running out of steam.

“The strong U.S. jobs report wasn't enough to push [the U.S. Dollar Index] back through 100 so I still think the greenback is peaking,” he said.

Of course, even if gold does drop lower next week, many analysts also noted that January is a seasonally strong period for gold and any drop should be a buying opportunity.

“The odds favor a strong rally over the next six to eight weeks or so—a seasonally strong period, traditionally—given the high number of shorts and number of investors waiting on the sidelines. We certainly wouldn’t try to play the correction by selling,” Adrian Day, president of Adrian Day Asset Management.

Investors will have to wait until the end of the week for the release of any major economic data. On Friday, markets will receive retail sales data and the Producer Price Index for December. The New York Federal Reserve will also release its Empire State manufacturing survey for January.

Source: KitcoNews