(Kitco News) - Little U.S. economic data next week will mean the gold market will focus on international events with the European Central Bank (ECB) monetary policy meeting in the spotlight.
After two weeks of negative closes, gold is back in the green, with solid gains as hit a 13-month high Friday. Early Friday, April Comex gold futures rallied to a session high of $1,280.70 an ounce and managed to hold on to most of those gains, settling the session at $1,270.7 an ounce up on the week.
Gold managed to make the new highs despite the latest nonfarm payrolls report, which showed that 242,000 jobs were created in February, well above expectations for gains of 195,000.
However, economists dismissed the surprising strength in the headline number, noting that the details of the report, particularly wage growth, which fell 0.1% last month. Other economists note that most of the gains in employment growth were made as a result of more part-time jobs.
With gold breaking out of its consolidation period, momentum is expected to continue next week as a strong majority of retail and market analysts remain bullish in the near-term, according to the Kitco News Wall Street vs Main Street gold survey. This week, 1,254 people participated in Kitco’s online survey, of which 1,047 participants, or 83%, said they are bullish on gold next week. At the same time, 10 out of 19 market professionals, or 53% said they expect to see higher prices.
The next push is expected to come later in the week when the ECB is expected to announce more easing measures to try to stimulate its faltering economy and boost falling inflation pressures.
Although looser monetary policy measures will be negative for the euro, analysts said that as much as the U.S. dollar will benefit, so will gold prices.
Richard Baker, editor of the Eureka Miners Market Report, said that next week could be a major test for gold as January 215 ECB meeting marked high point for the yellow metal last year. Despite some similarities, he added that he is confidence gold will continue to move higher.
“Last year's January reaction to the ECB announcement turned the gold market bearish; this year may be bullish lift given continued fears of Brexit in June,” he said.
Ronald-Peter Stoeferle, fund manager at Incrementum AG, notes that gold demand in other currencies is helping gold rally. He noted that currency devaluation concerns in Europe has caused gold to rally more than 18% so far this year against the euro. At the same time concerns that Britain could exit the European Union has driven gold up almost 24% against the British pound.
Adam Button, currency strategist at Forexlive.com, agreed that gold could benefit alongside the U.S. dollar next week following the ECB meeting. He added that gold still has a lot more potential than the greenback as the Federal Reserve does not have enough evidence to hike rates following its March 16 monetary policy meeting.
Button said that he could see gold continue it rally for the next two weeks ahead of the U.S. central bank meeting.
“Gold should have sold off on the employment news and it didn’t,” he said. “Something that can rally on bad news is not going to stop rallying.”
Stoeferle agreed that gold’s week-end rally is more proof that it is in a new bull market; however, he also warned that the market is in overbought territory and could be due for a correction, especially as there will be little U.S. data to drive markets.
Ken Morrison, editor of the Morrison OnThe Markets, described gold’s price action as “nothing short of astonishing,” but also warned that extreme level of bullish sentiment leaves the market vulnerable to a correction.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
