Weaker Dollar, Shifting Rate Expectations To Drive Gold, Silver Next Week – Analysts

(Kitco News) - Gold and silver were the big winners Friday as September U.S. employment data showed weaker-than-expected job growth., with some analysts noting that a weaker dollar on shifting interest rate expectations will continue to support the yellow metal next week.

Friday morning, the Bureau of Labor Statistics said 142,000 jobs were created in September, well below expectations of 200,000 jobs. Adding to the negative headline number, August and July employment data were revised lower by a total of 59,000 jobs.

In reaction to the disappointing data, gold jumped more than 2%, hitting a session high of $1,40.90 an ounce, and silver rallied almost 5%, hitting an intra-day high of $15.225 an ounce. However, the momentum wasn’t enough to help gold on a weekly basis. Comex December gold futures settled Friday’s session at $1,136.6 an ounce, down almost 1% on the week.

At the same time, December silver futures fared better on a weekly basis, settling at $15.263 an ounce, up more than 1% from Monday’s opening price.

The strong rally Friday has created some renewed optimism in the gold market, according to the weekly Kitco News Wall Street vs Main Street Gold Survey.

Last-minute voting in the online survey Friday morning pushed the results to a statistical tie among retail investors. Before U.S. nonfarm payrolls data was released, there was more bearish sentiment among voters. In this week, 210 people participated in the online survey. Of those respondents, 86 people, or 41%, are bullish on gold in the short-term. At the same time, 89 people, or 42%, are bearish and 35, or 17%, are neutral on gold prices.

Sentiment also shifted among market professionals with some analysts changing their vote after the employment data was released.

A clear majority of market professionals are now bullish on the yellow metal next week. Out of 36 market experts contacted, 20 responded, of which 14, or 70%, said they expect to see higher prices next week. At the same time, two analysts, or 10%, expect to see lower prices, and four people, or 20%, are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Most analysts are bullish on gold in the near-term as markets pushback expectations for when the Federal Reserve will be able to raise interest rates. With little major U.S. economic data to be released next week, many traders have said that gold will take its cue from outside markets like the U.S. dollar and equities.

Phil Streible, senior market strategist at RJO Futures, said that he expects gold prices to at least test the 200-day moving average at $1,179.30 as the employment data has probably pushed an interest rate hike to 2016.

Although there is still more data to go through before December, Streible said that the damage from September’s employment report has been enough to spook markets.

“[W]e get two more economic reports but they will be too little too late,” he said. “If we can break the September high then I think we will end up testing the 200-day moving average.”

Jessica Fung, senior commodity analyst at BMO Capital Markets, said that although the employment data was surprisingly bad, it probably wasn’t enough to create a “fundamental shift” in the gold market.

She explained that for gold to ultimately break its long-term downtrend, there has to be renewed fears that the U.S. economy is entering a recession. It will take more than one report to signal that shift, she explained.

As long as the Federal Reserve plans to raise interest rates, either in December or 2016, gold prices will continue to suffer, Fung added.

“I think maybe we get one more positive day in gold and then traders will start to look and see what the U.S. dollar is doing, what the rest of the world is doing,” she said.

Adam Button, currency strategist at Forexlive.com, said that traders can’t ignore gold’s latest move but with so much uncertainty fundamentally, it important to look at the technical picture.

Button added that he is bullish on gold in the near-term but prices really need to push above $1,150 an ounce to create longer-term momentum.

“It is difficult to weave a clear narrative in the gold market so you need to look at the tape to see how this move will play out,” he said.

George Gero, vice president and precious metals strategist for RBC Capital Markets, said that the latest move in gold is positive but more still needs to happen to encourage investors back into the precious metals market.

Gero said that one topic that has so far been ignored by traders and the media -- U.S. deficit talks -- could once again reemerge in the headlines as a new debt ceiling deadline quickly approaches. He added that debt talks will be U.S. dollar negative and gold positive.

Thursday, U.S. Treasury Secretary Jacob Lew, said that Congress has until Nov. 5 to raise the government’s borrowing limit to allow it to meet its debt obligations.

“Right now, gold has enough going for it to push prices higher but the market still needs something else and I think that could be the debt talks,” he said. “That could be the next issue to drive gold higher.”

Gero added that for him the line in the sand remains at $1,200 an ounce as that level will encourage funds to allocate more capital into precious metals. 

Courtesy: Kitco News