Friday July 5, 2013 2:30 PM
(Kitco News) -Gold traders are likely to remain preoccupied next
week with thoughts about when the Federal Reserve might scale back
its quantitative-easing program, although the ongoing conflict in
Egypt and exchange-traded-fund flows also will be on their
Gold has suffered since mid-June when Fed Chairman Ben Bernanke
suggested policymakers could start to taper their bond-buying
program yet this year if the economy continues to improve. Analysts
say that notion was reinforced Friday when the U.S. jobs report for
June was stronger than what markets had factored in. Gold fell as
the dollar and Treasury yields rose.
Gold and silver were higher for the week until the Labor
Department early Friday reported a stronger-than-forecast 195,000
rise in June non-farm payrolls, along with upward revisions for May
and April. The market then turned south, with the most-active
August futures finishing the week with a loss of $11 to $1,212.70
an ounce on the Comex division of the New York Mercantile Exchange.
September silver lost 73.4 cents for the week to $18.736.
Traders will keep monitoring data to see if in fact the economy
does continue to pick up or instead reverses course, although the
economic calendar is light until weekly jobless claims Thursday,
followed by the Producer Price Index and University of
Michigan/Thomson Reuters report on consumer sentiment Friday. On
Wednesday, they will also get minutes of the last meeting of the
Federal Open Market Committee.
"We had the jobs report today. That moved forward expectations
that the Fed eases (up on its bond purchases) sooner rather than
later," said Robin Bhar, analyst with Societe Generale. "So the
market will be focused on economic data to fine-tune when they will
In particular, this could exert some pressure on gold during the
early part of the week, said Sean Lusk, director of commercial
hedging with Walsh Trading. That's because a lot of U.S. traders
are away on Friday, taking a four-day weekend after the Fourth of
July holiday on Thursday. When they return Monday, some will be
reacting to the jobs news for the first time.
Had trading desks been fully staffed on Friday, gold may have
fallen by as much as $60 to $70 after the jobs report, said
Sterling Smith, futures specialist with Citi Institutional Client
Group. As a result, he likewise suspects gold could weaken further
on Monday, at least while returning market participants play
Traders Also To Monitor Egypt, ETF Flows
While the dollar and Fed seems to be constantly on the minds of
gold traders, the gold market also may start reacting more to the
political crisis in Egypt, said Afshin Nabavi, head of trading with
MKS (Switzerland) SA. Tensions are high in Egypt, with protests
occurring after the military took over control of the government
this week following discontent with the president. Egypt is not a
major oil producer, but the market nevertheless tends to worry
about whether crises in the region will spread and disrupt
shipments, such as through the Suez Canal.
"The situation in the Middle East, particularly Egypt, is pretty
tense," Nabavi said. "That's reflected in the price of oil right
now. Gold could follow the gold market."
August crude oil on the New York Mercantile Exchange traded as
high as $103.25 a barrel this week, its highest level in more than
Traders also continue to monitor holdings of exchange-traded
products backed by gold, Bhar said. Large outflows have occurred so
far this year as investors exited positions, adding to the
downdraft in gold.
Additionally, observers said, the market will remain on the
lookout for any signs on whether physical demand picks up more
strongly. "Physical demand is slowly starting to pick up and we
look for gold to hold in here with $1,250 now our short-term
resistance," said a research note from TD Securities.
Barclays pointed out that ETP outflows have slowed during the
early part of July, with 4.8 metric tons for the month so far.
"However, physical demand has not responded to the lower price
environment to the same magnitude as seen in April," Barclays said.
"Volume traded on the Shanghai Gold Exchange remains elevated but
well below the levels set in April; the rolling monthly average is
some 20% below the peak set in April. Demand in India remains
lackluster, with local traders reporting subdued interest in the
usually slow period for demand."
(Editor's note: Neils Christensen contributed to this
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By Allen Sykora of Kitco News; firstname.lastname@example.org