Gold Prices to Look for Direction from Data Flow in the Week Ahead

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On Friday, gold futures dropped by nearly $40 an ounce on the back of a bigger-than-expected climb in new U.S. jobs last month. This led to steep weekly losses.

Gold for August delivery lost $39.20, or 3.1%, to settle at $1,212.70 an ounce on the Comex division of the New York Mercantile Exchange.

However, in electronic trading in Asian trading hours, gold trades in the green territory. The metal’s price is up by 0.73%.

On Monday, Citigroup cut its economic growth forecasts for China, citing downside risks to growth from “policy missteps.” The brokerage cut China’s gross domestic product growth to 7.4% from 7.6% in 2013, and to 7.1% from 7.3% in 2014. The revised forecasts are based on a conservative assumption of global recovery, and therefore, “there can be upward surprises,” Citi added.

In addition, the International Monetary Fund may trim its global growth forecast once again this week, because of the situation in emerging countries, the IMF chief Christine Lagarde said during a conference in France on Sunday.

During the beginning week, gold traders are likely to monitor closely the ongoing conflict in Egypt and exchange-traded-fund flows. Concerns about when the Federal Reserve might scale back its quantitative-easing program continue to influence investors sentiment, although this is already an old news.

Gold prices suffered since the middle of June when Fed Chairman Ben Bernanke suggested policymakers could start to taper their bond-buying program later this year if the economy continues to improve. Market analysts comment that notion was reinforced Friday when the U.S. jobs report for June was stronger than what markets had factored in. Gold fell as the dollar and Treasury yields rose.

Gold and silver were higher for the week until the Labor Department early Friday reported a stronger-than-forecast 195,000 rise in June non-farm payrolls, along with upward revisions for May and April. The market then turned negative, with the most-active August futures finishing the week with a loss of $11 to $1,212.70 an ounce on the Comex division of the New York Mercantile Exchange. September silver lost 73.4 cents for the week to $18.736.

Traders will keep monitoring data to analyze if in fact the economy, U.S. and global, does continue to pick up or instead will slow down. According to the U.S. economic calendar, weekly jobless claims are due on Thursday, while Producer Price Index and University of Michigan/Thomson Reuters report on consumer sentiment are scheduled for Friday.

During the starting week, the gold market also may start reacting more to the political crisis in Egypt. The country is not a major oil producer, but the market nevertheless tends to worry about whether crises in the MENA region will spread and disrupt shipments, such as through the Suez Canal. That is reflected in the price of oil right now.

Elsewhere, Asia-Europe spot container rates soar as carriers hard line the 1 July GRI against a background of weak market fundamentals.

In addition, market participants will also continue to monitor holdings of exchange-traded products backed by gold. Large outflows have occurred so far this year as investors exited positions, adding to the downdraft in gold.

Additionally, investors will remain on the lookout for any signs on whether physical demand picks up more strongly. Physical demand is slowly starting to pick up and gold is likely to hold about $1,250 short-term resistance.

ETF outflows have slowed during the early part of July, with 4.8 metric tons for the month so far. Still, physical demand for gold has not responded to the lower price environment with the same magnitude as seen in April. Volume traded on the Shanghai Gold Exchange remains elevated, but well below the levels set in April. Demand in India remains lackluster, with local traders reporting subdued interest in the usually slow period for demand. In the Arab world, Ramadan is expected to start in a day or two and investors and traders are mostly away from the markets well until before Eid Al Fitr.

In general, timing is not favorable for significant gold price movements.

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