(Kitco News) - All eyes in the gold market will be on global equities and crude oil next week as traders watch to see if these markets continue to collapse, thereby lending a safe-haven bid to gold.
Additionally, traders will keep monitoring U.S. economic data for clues on how much the Federal Open Market Committee will hike interest rates, as well as watching for any further geopolitical flare-ups.
As of 1:43 p.m. EST, Comex February gold was at $1,090.20, a loss of $13.90 for the week even though the contract bounced by $16.60 on Friday. March silver was at $13.92, down a half cent for the week after recovering by 17.2 cents on Friday.
While lower for the week, February gold is stronger for the year to date, having benefited from the huge selloff in global equities so far in 2016.
Participants in a pair of Kitco News’ surveys look for higher prices next week. In an online survey of retail investors, 157 people, or 51%, are bullish on gold in the short term. Ninety-seven participants, or 32%, are bearish, and 53, or 17%, are neutral. In a survey of Wall Street professionals, 13 respondents, 62%, said they expect to see higher prices next week. Two professionals, or 15%, see lower prices, while three, or 23%, are neutral on gold.
Traders will keep tabs on stocks after recent turbulence, said Bob Haberkorn, senior commodities broker with RJO Futures. As gold futures were settling Friday, the Dow Jones Industrial Average was down by nearly 500 points. Gold was higher, although it has been choppy lately.
“It feels like heading into next week, we are starting to build a base of support here,” Haberkorn said of gold. “I expect more flight to safety in metals, whether it be in gold or silver. There is a fear out there in equity markets right now. You were seeing money flowing into Treasuries as well as gold this morning.”
Much of the U.S. stock-market weakness appears to have been triggered by sell-offs in Chinese equities. However, the tumble in crude oil below $30 a barrel is also playing a role.
Market participants are aware that the global market for crude is oversupplied at the moment, said Charles Nedoss, senior market strategist with LaSalle Futures Group. However, there are worries about just where demand will pick up. In the meantime, he continued, market participants are viewing soft oil prices gold as an economic barometer signaling weak demand for a wide range of goods globally.
As a result, he said, crude oil will remain a major focus for not only gold but markets collectively.
“Crude oil seems to me like it’s been the real driver here,” Nedoss said. He later added, “Sub-$30 crude is telling you that there is not demand to meet the supply, and the demand is a function of slowing markets and slowing global economies.”
Meanwhile, Societe Generale analyst Robin Bhar commented that traders will continue to monitor U.S. economic data for clues on how aggressively Federal Reserve policymakers might up rates after the first hike in nearly a decade. The Fed raised rates by 25 basis points in mid-December.
There is a feeling that the upcoming January Fed meeting will be too soon for officials to hike again without getting more economic data first, Bhar said. So traders are trying to gauge whether policymakers might hike again in March. Likewise, events in markets and other economies generally – such as China – may have implications for the Fed, Bhar added.
“The Fed has told the market that further interest-rate hikes would most likely occur this year,” Bhar said. “However, they would be data dependent. So, how the data comes through will be important to the market assessing whether the Fed is going to raise interest rates further and the likely timing of that.”
The main U.S. economic reports next week are the Consumer Price Index and housing starts Wednesday, weekly jobless claims and Philadelphia Federal Reserve survey on Thursday, then existing-home sales on Friday.
Fed tightening tends to hurt gold since it strengthens the dollar and adds to the so-called “opportunity cost” of holding the metal rather than an interest-bearing asset.
Additionally, Bhar added, the market will keep tabs on geopolitical events. At the start of the year, gold also drew a safe-haven bid when tensions between Saudi Arabia and Iran flared over the Saudi Arabia’s execution of a Shiite cleric, as well as North Korea’s claim to have tested a hydrogen bomb.
By Allen Sykora of Kitco News; asykora@kitco.com
