Gold Traders Eying Dollar Weakness; U.S. Payrolls On Deck

San Francisco (Apr 29)  Gold and silver futures soared to 15-month highs this week as the U.S. dollar came under pressure, so traders will be watching next week to see whether the greenback continues its slide.

That in turn may hinge on some of the more closely watched U.S. economic reports released next week, including the granddaddy of them all – nonfarm payrolls next Friday.

“The market the last couple of days has been going higher on the back of the weaker dollar, especially against the (Japanese) yen,” said Afshin Nabavi, head of trading with MKS (Switzerland) S.A. “We are flirting with important resistance levels….I would not be surprised if we test $1,300.”

After he spoke, the market in fact nearly raced to this level yet on Friday. As of 12:45 p.m. EDT, Comex June gold was up $59.70, or 4.8%, for the week to $1,293.40 an ounce and peaked at $1,299. July silver gained 86 cents over the same time frame, or 5%, to $17.89 an ounce.

The metals’ strength came as the U.S. dollar fell Friday as far as 106.642 Japanese yen, the greenback’s lowest level since October 2014. The euro climbed to $1.14600, the highest in two weeks.

Retail investors and market professionals alike were bullish in the most recent weekly Kitco surveys. Seventy-three percent of respondents to an online poll said they see gold higher next week, while 71% of Wall Street analysts and traders called for the price rise to continue.

“As usual, it will be the economic data – primarily U.S. economic data,” said Robin Bhar, metals analyst with Societe Generale.

The first week of a new month always brings several major U.S. reports, most notably nonfarm payrolls and a pair of Institute for Supply Management surveys. The ISM manufacturing survey is due out Monday and the service-sector report Wednesday, while nonfarm payrolls is next Friday. Other major reports include the ADP private-sector jobs report Wednesday and weekly jobless claims Thursday. 

As a general rule, data stronger than economists’ consensus forecasts tend to underpin the dollar – and hurt gold -- since it means a greater likelihood of Federal Reserve tightening. Conversely, soft data push back the chances of rate hikes, thereby supporting gold.

“What we saw this week was dollar weakness,” Bhar said. “The market will be trying to assess whether dollar weakness will continue. That will be the key if gold is going to maintain recent gains or twist lower.”

In particular, the jobs report may be one of the biggest factors influencing whether the Federal Reserve hikes rates when policymakers meet again in mid-June, said Phil Flynn, senior market analyst with Price Futures Group. As of now, expectations are for jobs growth of some 200,000 in May.

The lack of Bank of Japan stimulus at a policy meeting this week put downward pressure on the dollar, Flynn said. He continued: “If we get a very strong jobs number, we could see that change later in the week….There should be some trepidation on that jobs number, especially since the Fed has made it very clear that they are data dependent.”

Bill Baruch, senior commodity broker at iiTrader, said general U.S. dollar weakness likely will continue to be bullish for gold; however, he also warned that with Friday’s employment report, the greenback could see some short-term strength, which would be negative for gold.

He noted after the Fed’s dovish monetary-policy statement released this week, it is clear the central bank is in no hurry to raise interest rates, which if true will be the biggest driver for U.S. dollar weakness.

“But that is not to say that we won’t see pockets of U.S. dollar strength,” Baruch said. “I think we could see a stronger U.S. dollar following the employment numbers and that will push gold down. But ultimately the trend for gold is higher; selloffs in the market are being bought, which is a sign of strength.”

Based on the technical charts, bullish traders appear to have the upper hand at the moment, Flynn added.

“With the breakout today, the bears are in trouble right now and the momentum is definitely with the bulls,” he said.

Some observers pointed out there could be added volatility on Monday, when global trade will be thinner than normal with markets in the U.K. and a number of other nations closed for holidays. That could also mean added volatility on Tuesday, should Asian traders come back and see sharp gains since they last traded, some said.

Source: KitcoNews