(Kitco News) - Oil prices, U.S. interest rates and the dollar are expected to dominate the market next week, with optimism high that gold’s two-week rally will continue.
Not only is gold up for the second consecutive week, but futures are also ending their best month since January 2015. Comex April gold futures settled Friday’s session at $1,116.40 an ounce, up 1.7% for the week and more than 5% on the month.
Silver prices also saw significant gains, settling Friday’s session at $14.243, up 1.2% for the week and 3% for the month.
For the second week in a row, Kitco’s online survey showed a massive majority of retail investors are bullish on gold in the near term. This week 994 people voted in the online survey. Of those 810, or 81%, said they are bullish on prices next week – the same percentage hit in the previous survey. At the same time, 112 people, or 11%, said they are bearish on gold next week. Only 72 people, or 7%, said they are neutral on the yellow metal.
Sentiment among market professions was also positive, albeit lower than the retail segment and down from the previous week. Out of 34 market experts contacted, 17 responded, of which 10, or 58%, said they expect to see higher prices next week. Four professionals, or 24%, said they see lower prices, while three people, or 18%, are neutral on gold. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Although Ole Hansen, head of commodity strategy at Saxo Bank, is slightly negative on gold next week, expecting to see a technical pullback after the recent rally, he said that the positive start to the year could signal that gold has reached its long-term bottom.
“I think calls for $1,000 gold will start to fade,” he said. “But would I buy at this price right now? Maybe not; I think there might be a better buying opportunity in the next couple of weeks,” he said.
Hansen added that he will be paying attention to oil prices next week to determine where gold is headed. If crude oil falls back to recent lows it could spook already fragile markets, which would be positive for the yellow metal.
Darin Newsom, senior analyst at Telvent DTN, said that he is optimistic in the near-term for gold but doubts the market can achieve a long-term rally until prices break at least the October highs at $1191.70 an ounce.
“Gold could rally next week but to get something sustainable we have to start taking out some of these old highs, starting with the October high,” he said.
Jessica Fung, senior analyst at BMO Capital Markets, said that while gold is benefiting from safe-haven demand the ultimate driver for the gold market remains Federal Reserve interest rate expectations.
She added that Friday’s employment data, if it comes in stronger than expected could raise expectations that the U.S. central bank will be on track to raise interest rates possibly as soon as March.
“If the market starts repricing in a Fed rate hike that will definitely hurt gold,” she said.
However, other gold analysts said that Friday’s employment numbers will have less impact on the Fed’s decision as global market uncertainty and low inflation will have them on hold for the foreseeable future.
Analysts at Capital Economics said the fact that gold held above $1,100 following Wednesday’s FOMC meeting, despite the fact the central bank didn’t completely rule out a rate hike in March, is a signs that other factors are driving gold.
“Indeed, gold’s positive performance recently illustrates the importance of factors other than monetary policy, including safe-haven demand and emerging market buying (5), in determining the direction of prices in the medium term,” the analysts said in a report Friday.
George Gero, vice president and precious metals strategist for RBC Capital Markets, said Friday’s surprise announcement from the Bank of Japan to introduce negative interest rates, will force the Fed to stand pat on monetary policy.
“Even with good employment, the Fed will not be able to raise rates,” he said. “They don’t want to be the only central bank to be raising rates.”
Shifting rate expectations is also having an impact on the U.S. dollar. Colin Cieszynski, senior strategist at CMC Makrets noted that although the U.S. dollar made some gains against the Japanese yen Friday, the index was still unable to break key resistance at 100, a signal that the greenback is “topping out.”
Although Friday’s employment report will get most of the attention next week, markets will also receive national manufacturing and service sector data for January.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
