Gold Price Sees First Quarterly Loss Since December; What’s Next?

San Francisaco (Sept 30)  A Lehman-style meltdown for Deutsche Bank or a significantly weaker labor market is needed to boost gold out of its three-month range next week, according to some analyst.

Wall Street Gold Bulls Need A Catalyst To Push Prices HigherDespite hitting a new two-year high at the start of the quarter, the gold market is headed to a quarterly loss Friday, dropping 0.7% since July, its first three-month loss since the fourth quarter of last year.  December Comex gold futures last traded at $1,320.40 an ounce, down 0.42% on the day.

However, silver has managed to keep its quarter win-streak alive as December silver futures are ending the quarter with a 2.5% gain. December silver futures last traded at $19.25 an ounce, up 0.32% on the day.

While analysts are expecting gold to continue to hold onto most of its current 24% gains seen since the start of the year, a new catalyst is needed to push prices higher, say analysts.

Heading into next week, analysts add that all eyes will be on Europe as markets digest the growing uncertainty around Germany’s Deutsche Bank and its potential to be the next Lehman Brothers.

“Right now, I think that markets are expecting to see a resolution to Deutsche Bank’s issues,” said Colin Cieszynski, senior market analyst at CMC Markets Canada. “If the market was concerned that this would spiral out of control, you would see gold prices much higher.”

Phillip Streible, senior market analyst at RJO Futures, said that he is expecting to see gold prices fall in the near-term as the market is unable to attract new buyers. He explained that the fact that gold is not higher, with renewed pressure in equity markets, is a sign of weakness.

“If gold can’t go higher on bad equity market news, then it has to go lower,” he said. “Gold has to dip below $1,300 an ounce to attract new buyers.”

It’s All About That... Employment Report

The U.S. economic data calendar picks up next week with the focus on Friday’s nonfarm payrolls report for September.

Mike Dragosits, senior commodity strategy at TD Securities, said that the data has to be well outside of the consensus to push gold out of its current range. Consensus estimates are calling for a print of 171,000 new jobs for September.

“Something below 100,000 is needed to push gold past $1,250 and something over 250,000 will be needed to push gold below $1,300,” he said.

However, other analysts said that this month’s jobs report might not have a major impact on gold, even if there is a big miss.

“The Federal Reserve is not expected to raise rates until December. There are three employment reports between now and then,” said Cieszynski. “This will be the first one so that will lessen its impact on markets slightly.”

Barry Potekin, vice-president of future accounts at RMB Group, agreed that one employment report isn’t going to have an impact on the current sentiment in the marketplace. “Even if it’s weaker, it’s just one report. Now, if you get weakness in three reports, then you have a problem.”

Trade of the Week - Look Long Term

Potekin said that he prefers to look at gold from a long-term perspective and warned investors to stay away from the short-term volatility.

He added that global zero and real negative interest rates will continue to make gold an attractive safe-haven investment.

“There is an uptrend underpinning gold and that is not going to change anytime soon,” he said.

Potekin told Kitco News that he likes using long-term options to capture gold’s gains. He said that he is buying June 2017 $1,500 calls and selling June 2017 $1,650 calls.

He added that the fee for the spread is $1,700, which is the most an investor can lose.

From a risk-reward standpoint, if the trade works out, investors can look at making $13,000 minus any trading fees.

“If prices don’t make it, then you just let the options expire worthless,” he said.

For silver, Potekin said he is buying July 2017 $23 calls and selling July 2017 $25 calls. He noted that the options cost $1,500 but investors have the potential to make $8,500.

Level To Watch Next Week

For short-term traders, analysts said that investors should watch gold’s current range between $1,300 and $1,350.

Dragosits said that he doesn’t see much selling pressure below $1,300 an ounce as growing uncertainty is prompting funds to stick with their gold bets.

Ole Hansen, head of commodity strategy at Saxo Bank, said in recent commentary that he thinks gold needs to have a deeper test of its support levels and warned that a push below $1,305 could lead to a deeper correction.

Streible said that he expects $1,291 an ounce to hold as long-term support. He also warned that a drop below $1,275 would signal an end to gold’s bull run and investors should “throw in the towel.”

However, not all analysts are bearish with Chris Beauchamp, market analyst at IG, noting that gold appears to be holding support above initial support at $1,320 and rising risk aversion in the marketplace could drive prices to $1,340, and then potentially to $1,360.

The Final Say

Although the spotlight will be on Friday’s jobs report. Markets will receive the ISM manufacturing PMI report Monday, and non-manufacturing PMI data Wednesday.

The week will also be capped off with more central bank talk: Fed Governor Stanley Fischer, Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George and Fed Governor Lael Brainard will also speak at events Friday.

Source: KitcoNews