European elections and the direction of the U.S. dollar should influence gold prices next week, market watchers said, as many are split on the direction for the metal after Fridayâs lackluster trade following lower-than-expected U.S. employment figures.
Prices were higher on Friday and down on the week. The most-active June gold contract on the Comex division of the New York Mercantile Exchange rose Friday, settling at $1,645.20 an ounce, down 1.17% on the week. July silver rose Friday, settling at $30.432 an ounce, down 3.12% on the week.
In the Kitco gold survey out of 33 participants, 22 responded this week. Of those 22 participants, 10 see prices up, while eight see prices down, and four are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Gold had only a modest reaction to the lower-than-expected jobs data, showing some slight gains while equity markets sold off sharply and yields on 10-year U.S. Treasury notes set a three-month low, suggesting safe-haven demand. Crude oil prices slumped on the news, with West Texas Intermediate crude oil traded at the Nymex falling under $100 a barrel. Mike Daly, precious metals strategist at PFGBEST, attributed the weakness in crude oil for capping gold.
According to the U.S. Department of Labor, 115,000 jobs were added in April, under the roughly 163,000 expected. The unemployment rate fell to 8.1%, but that was because of people not actively looking for work, rather than finding jobs. February and March employment rolls were revised higher. February was bumped up to 259,000 from 240,000 and March was revised up to 154,000 from 120,000.
Briefing Research analysts said when including discouraged and underemployed workers, the unemployment rate remained at 14.5% for a second consecutive month.
Several market watchers said there was more disappointing news than upbeat news in the report.
âThis definitely highlights the challenges for monetary policy,â said Nomura analysts.
They said the report will heighten discussion of third round of quantitative easing into the June Federal Open Market Committee meeting, particularly if Mayâs report is weak, too. Still, they added that they havenât changed their baseline expectations of modest 2%-plus growth for the U.S. economy this year.
PFGBESTâs Daly said considering jobs growth has not gone âthe way it should,â the Fed might come out with another quantitative easing measure later this year, which would be supportive for gold. âIf that happens gold will be closer to $1,800 than $1,500,â he said.
Fridayâs jobs data did not do much to push gold out of its recent trading range, something market analysts had hoped would occur. Deutsche Bank analysts said for the past six weeks, gold prices have been fairly stable at $1,650, following similar calm in the currency markets.
This calm has led to lower realized volatility in gold â and the same low volatility has been seen in many asset markets, they said, but that may come to an end if the U.S. dollar breaks out of its trading range. Since the jobs data didnât provide the impetus, this weekendâs European elections in Greece and France may do so. The elections âwill be important as to how it affect the euro and the spill-over effects this could have on the gold price and gold (volatility),â they said.
In France, polls show that socialist candidate Francois Hollande is keeping his lead over incumbent Nicolas Sarkozy.
âWe should have an interesting day on Monday, as markets will have a chance to assess how exactly the European landscape will change in light of any changes. We suspect that in the weeks ahead there will be pressure on the Europeans to ease up on austerity measures and introduce more in the way of stimulus, something that theoretically should weaken the euro in the short-run. In the meantime, ECB (European Central Bank) head Mario Draghi said yesterday that he would not rule out further easing if the regional economy continues to deteriorate,â said Ed Meir, commodities consultant for INTL FCStone.
Thereâs some debate on what that outcome may mean for gold. The metal has fared poorly lately when European woes grab headlines, falling with other risk assets and not acting like a safe haven. Further, other analysts said if the euro falls the U.S. dollar will rally and that can put pressure on gold â and all commodities â because they are dollar-denominated.
Longer-term, gold could benefit if Europe veers from austerity toward more stimulus, particularly if the ECB cuts interest rates and buys government bonds as some economists are suggesting. âWhen that happens, gold price should push higher,â said Sharps Pixley.
One sign of changing views toward austerity may come next week following the meeting of the Bank of England. Nomura analysts said itâs possible the BoE may institute another round of quantitative easing. They said the BoEâs previous 50 million-pound program is coming to an end and they said the British central bank may announce a 25-million pound program because of disappointing demand data out of the U.K.
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By Debbie Carlson of Kitco News