The gold market has much to consider in the coming week. The Organization of Petroleum Exporting Countries meeting, the eurozone inflation data release, and the U.S. holiday season fast approaching is keeping tensions high.
As Comex December gold options expire at the beginning of next week, experts are forecasting some volatile trading sessions Monday. Gold could also see last-minute positioning ahead of the Swiss referendum on November 30th. December gold futures settled at $1,197.70 an ounce Friday, up 1.02% on the week in the Comex division of the New York Mercantile Exchange. December silver rose 0.5% as well, settling in at $16.395 an ounce.
This week, gold ultimately closed the week higher and had its third straight week of gains. China’s unexpected interest rate cut had a positive effect on the market by cutting the one-year benchmark lending rate 40 basis points to 5.6%, and the one-year deposit rate 25 basis points to 2.75%.
“At face value, policy easing in China should be gold-supportive, particularly if it helps to hold up economic growth,” said Joni Teves, analyst at UBS. “But UBS China economists do not think that today’s rate cut moves the needle for 2015 GDP growth expectations. So, while today’s rate cut may be gold-friendly at the margin, ultimately the effect should be more muted than what the initial reaction might suggest.”
As the dollar gained on the Chinese news and while the European Central Bank began to buy asset-back securities, gold was able to rise above $1200. RBC Capital Markets Global Futures Vice President, George Gero, believes gold attracted some buying interest when it rebounded above $1200. “There were too many negatives priced in the past two weeks,” said Gero as to why gold bounced Friday.
Option strike prices that are of the same value or “in the money” of current future prices will become futures after the expiration, according to Gero. That being said, gold should start off the week watching Monday’s options expiration for the December contract. “There were many $1,125 and $1,100 strike puts and there are many $1,200 and $1,225 call options as well, so some nail-biting may ensue,” said Gero. “Early next week also features traders moving positions out of the December futures and into deferred months as the calendar nears the month of December.”
Later next week, analysts will be watching for what Eurozone inflation data shows. When inflation is down like the Eurozone inflation has been lately, it doesn’t support gold very well.
Third-quarter data on gross domestic product is expected soon on the U.S. Analysts are projecting similar figures as the preliminary readings of 3.5%. The head of metals research at Société Générale, Robin Bhar, is expecting those two data sets to underscore current views of a stronger U.S. economy versus a weakening eurozone. “I think the theme will still be U.S. growth, and the Federal Reserve is ooh-ing and ahh-ing about being data dependent, which could cause the Fed to raise rates down the road, negatively effecting gold,” said Bhar.
