(Kitco News) - The Federal Open Market Committee will take front and center stage for the gold market next week, although a slew of economic reports could play a supporting role.
Policymakers are scheduled to meet on Tuesday and Wednesday. The meeting will be followed by a summary of economic projections from individual Fed members, as well as a press conference by Chair Janet Yellen.
“People will be focusing on that,” said Afshin Nabavi, head of trading at MKS (Switzerland) S.A.
Going into the weekend, participants in the weekly Kitco gold survey look for gold to maintain its upward momentum after the yellow metal hit a 13-month high this week. Kitco’s online survey received 1,085 votes, of which 829, or 77%, were in the bullish camp for next week. Seven of 11 analysts taking part in a Wall Street survey, or 64%, were bullish.
Around 1:40 p.m. EST Friday, Comex April gold was $1,259.90 an ounce. This was down 20 cents for the week, but earlier day prices hit a high of $1,287.80 before falling back on profit-taking encouraged by stronger equities. May silver was up 7 cents this week to $15.615 an ounce.
The FOMC hiked interest rates for the first time in nearly a decade in December and expectations then were for more tightening this year, which put gold under pressure at the time. However, in the last two months, gold has risen sharply, fueled by weakness in global financial markets and renewed worries about the economy that had analysts drastically scaling back Fed expectations.
U.S. economic data have been improving again lately, such as a 242,000 gain in February nonfarm payrolls after a drop-off to 172,00 in January from 271,000 in December. Still, Fed officials are not expected to hike this week.
“They (traders) will be looking for clues on monetary policy, particularly in light of some of the stronger economic data we’ve had concerning the U.S. economy in the last month or so,” said Robin Bhar, metals analyst with Société Générale.
More specifically, market participants will be watching for any nuances in Fed language – from the statement to economic projections to Yellen’s remarks – for clues on whether policymakers might hike again in the foreseeable future.
“If they (indicate) that the economy is doing well and they’re still set on the path of raising rates, then that is likely to at least take some of the steam out of the current rally,” Bhar said. “We could see some liquidation on the back of more hawkish commentary.”
Conversely, should the Fed sound dovish, this could provide support for gold, he continued.
Daniel Pavilonis, senior commodity broker with RJO Futures, suggested the weaker dollar after Thursday’s European Central Bank meeting could mean Fed officials feel more free to hike at some point if they see fit. A muscular greenback was thought to be one factor that might hold back policymakers.
Still, even if the Fed sounds hawkish, this doesn’t necessarily mean gold will fall through the floor, Pavilonis said. Instead, this could start turning traders’ attention toward inflation, he pointed out.
“We have been seeing inflation. Commodities have been going up to some extent. Gold has gone up and crude oil has gone up,” he said. “How does that play into (Fed policymakers’) forecast and their 2% inflation target?”
He pointed out that inflation historically has often occurred around the time when central bankers start to remove liquidity. In fact, gold’s rally began not long after the December rate hike.
While the Fed will be the key focus, there will be plenty of economic data released next week. Retail sales, producer prices and the New York Fed Empire State manufacturing survey are all scheduled for release on Tuesday, followed by the consumer price index, housing starts and industrial production on Wednesday. Jobless claims and the Philadelphia Fed manufacturing survey are due Thursday.
Gold hit longtime highs this week even though the physical market has been quiet lately, Nabavi pointed out.
One other event traders will be keeping an eye on is the conclusion of National People’s Congress in China, Bhar added. Traders will be watching for any statements about fiscal stimulus or monetary easing.
By Allen Sykora of Kitco News; asykora@kitco.com
