(Kitco News) - Thanksgiving may be over in the U.S., but traders will still have a full plate next week.
Only instead of turkey, cranberry sauce and sweet potatoes, the menu will include speeches by Federal Reserve Chair Janet Yellen, a European Central Bank meeting and the monthly U.S. jobs report.
For some time now, gold has been under pressure from a stronger U.S. dollar on expectations that the ECB will announce further loosening of monetary policy while the Fed starts tightening. The latter was boosted when the government reported a 271,000 rise in October U.S. nonfarm payrolls that topped expectations.
As a result, traders will be on the lookout for the November report next Friday.
“I think it’s going to be about the job numbers,” said Sean Lusk, director of commercial hedging with Walsh Trading. “That’s the near-term focus.”
Nearby Comex gold futures hit a five-year low on Friday as the March dollar index climbed to 100.405, its strongest level since March. February gold finished the week with a loss of 2% to $1,056.20 an ounce. March silver lost 0.1% to $14.048.
“U.S. dollar strength and the prospect of rising U.S. interest rates continued to weigh on precious metals prices this week,” said a research note from Capital Economics released Friday.
The weekly Kitco survey shows an expectation for a bounce in prices next week. Of the retail investors who took part in an online survey, 670 voters, or 78%, are bullish on the metal. Another 139 participants, or 16%, see lower prices, while 50 voters, or 6%, are neutral on prices for the week ahead. Of 14 market professionals who responded, 8, or 57%, say prices should move up. Four, or 29%, are bearish, while 2 participants, 14%, are neutral.
It remains to be seen just how much another strong U.S. jobs number would hurt gold next Friday, since the start of tightening is already factored into prices, observers said. “I think we’ve already factored in almost two tightenings because the 10-year (Treasury yield) has gone from 1.80% (from earlier this year) to 2.21%,” said George Gero, vice president and precious-metals strategist with RBC Capital Market Global Futures.
Against this backdrop, however, gold likely would get a boost should the jobs report come out weak, particularly if payrolls should rise in the low 100,000 area, Lusk said.
“That might incur some short covering,” Lusk added.
Going into the jobs data, Lusk said, there is also potential for short covering as traders even up positions. Further, Lusk said, bargain hunting could help prop up prices, now that they have hit multi-year lows.
Ahead of time, traders will keep dissecting Yellen’s comments to see if she offers any further clues on what to expect in the way of monetary policy when the Federal Open Market Committee meets again in mid-December. Yellen is scheduled to appear before the Economic Club of Washington on Wednesday and the Joint Economic Committee Thursday.
Also on Thursday, the ECB holds a monetary-policy meeting. Expectations have been growing for the central bank to increase its asset-purchase program known as quantitative easing, particularly after ECB President Mario Draghi said last week that “we will do what we must” to raise inflation to an acceptable level.
There is a dichotomy between central banks, pointed out Ralph Preston, principal with Heritage West Financial. The ECB is expected to remain accommodative, while the Fed is seen removing some accommodation, with the sum total supporting the dollar.
“We’ll take our cue from the dollar,” Preston said about the key focus in the gold market next week. “It looks like the dollar is going to challenge that high put in place in March of this year.”
Gold tends to move inversely to the greenback. A stronger dollar pressures all commodities since it makes them more expensive in other currencies, plus some investors are less likely to buy gold as an alternative currency when the greenback is muscular.
“People have been exiting and the funds have been fleeing gold because of the strong dollar,” Gero said.
Other major U.S. reports next week include the Chicago Purchasing Managers Index on Monday, Institute for Supply Management manufacturing PMI Tuesday and non-manufacturing index Thursday, the ADP private-sector jobs and Fed Beige Book report Wednesday and weekly jobless claims Thursday.
By Allen Sykora of Kitco News; asykora@kitco.com
