|Gold Market to Focus On Bernanke, U.S. Data Next Week For Any Clues On Monetary Easing|
13 July 2012, 2:48 p.m.
By Allen Sykora
Of Kitco News
(Kitco News) - The gold market will be watching next week for any clues on whether to expect further Federal Reserve monetary easing, with much of the focus likely to be a slew of U.S. economic reports and congressional testimony on the economy from Fed Chairman Ben Bernanke.
Prices rallied sharply on Friday to flip to a gain for the week after gold was behind as of Thursday. The Comex August contract rose $26.70 Friday to settle at $1,592 an ounce, which was a gain of $13.10 from a week ago. September silver climbed 20.8 cents Friday to close at $27.369, posting a weekly gain of 44.90 cents.
The gold market’s end-of-week bounce appeared to be on hopes for more stimulus in the U.S. and elsewhere, said Charles Nedoss, senior market strategist with Kingsview Financial. China’s second-quarter gross-domestic-product growth cooled to 7.6%, the lowest level in more than three years, and low coal prices and electrical usage also portend economic slowing, he said. Gold’s gains accelerated around mid-morning in New York after the University of Michigan-Thomson Reuters consumer-sentiment index fell to a preliminary July reading of 72, its lowest since December, from 73.2 in June, Nedoss continued.
There are hopes for “more worldwide easing, not just here” in the U.S., Nedoss said.
Technically, prices bounced “pretty good” Thursday from near-term chart support in the $1,550-$1,560 area, Nedoss said. “You see some bottom feeding, prompted by weaker (economic) numbers all the way around,” he said.
As for next week, of the 19 participants who took part in the Kitco News Gold Survey this week, 10 see prices up, while four see prices down and five see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts. Several said this outlook may well hinge on whether the news flow next week supports or undercuts the case for further Fed easing.
The research departments of a number of investment banks have said they see potential for a third round of quantitative easing down the road, assuming U.S. economic data remains soft. This is the buying of Treasury securities in a bid to push down long-term Treasury yields.
At the June Federal Open Market Committee, officials instead extended the less-gold-bullish program known as Operation Twist, in which officials sell short-term securities to buy long-term ones, thereby not expanding the central bank’s balance sheet.
Still, hopes for so-called QE3 have not died since U.S. economic data remains on the weaker side. Since the last FOMC meeting, the government reported that June non-farm payrolls rose only 80,000. This meant jobs growth was less than 100,000 in each month during the second quarter.
Against this backdrop, Bernanke is scheduled to appear before a pair of congressional panels Tuesday and Wednesday mornings to testify on the economy. Markets will be watching to see whether he appears less dovish than in the past, which would be seen as a tilt toward more aggressive monetary accommodation.
Often, traders have tended to take positions ahead of Fed releases or appearances in which market participants have factored in a greater likelihood of more QE, pointed out Bart Melek, director of commodity strategy, rates and foreign-exchange research for TD Securities.
“There is a lot of chatter that quantitative easing will be required but will need data to show us why we shouldn’t get it,” Melek said. “As such, ahead of the possible policy announcement, you might see people taking long positions….which could move not only gold but the entire commodity complex higher. Any serious hint from policy-makers that QE3 is the offing or imminent could very well move the price out of its recent trading range and much higher.”
Gold’s performance during the latter part of next week no doubt may hinge largely on just what Bernanke ends up saying, said Melek a Chicago-based futures trader. Should the Fed chairman disappoint the market, gold may well come back down, as it has after prior QE false starts, the trader added.
“We don’t expect him (Bernanke) to say anything that he hasn’t before, but there is always that hope, I guess,” Melek said.
Additionally, the market will be scrutinizing U.S. economic data next week to see whether they hurt or support the odds for more QE.
“There are a lot of numbers to trade off next week,” Nedoss said. “If we see weak numbers, we’ll have people building the case again for QE.”
The calendar includes retails sales and the Empire State manufacturing survey on Monday, Consumer Price Index and industrial production on Tuesday, followed by housing starts and the Federal Reserve Beige Book report on Wednesday. Reports Thursday include weekly jobless claims, existing-home sales and the Philadelphia Fed survey.
One of the bigger reports early in the week will be June retail sales on Monday. The consensus forecast is for a rise of 0.3%, or 0.1% excluding autos.
“Any significant beat would get people to think that quantitative easing is not as imminent. A significant disappointment might rally up gold in particular,” Melek said.