How soon can we see $1,600 gold price again?

New York (Jan 10)  Next week’s docket is full of key events to keep an eye on, including key macro data releases, possible U.S.-China Phase One trade deal signing, and more of the U.S.-Iran tensions. The overall picture remains supportive for gold with analysts not ruling out seeing $1,600 again soon.

Gold is ending the week on a bullish note following the announcement that the U.S. is imposing more sanctions on Iran in response to Iran’s attack on the U.S. forces in Iraq. New sanctions will target Iran’s metal exports, manufacturing, and textile sectors as well as eight senior Iranian officials.

In response, gold prices moved higher with February Comex gold futures last trading at $1,559.70, up 0.35% on the day.

Also, the U.S. nonfarm payrolls surprised on the downside on Friday, rising only 145,000 versus the expected 164,000 in December, while the unemployment rate remained at 3.5% — a 50-year low.

“We were going to get a boost from payrolls. They were a little less than expected, but there are no reasonable expectations that the Fed eases off from this,” TD Securities head of global strategy Bart Melek told Kitco News on Friday.

Mitsubishi analyst Jonathan Butler added that investors should treat the December payrolls with a note of caution. “They are frequently revised upwards,” Butler said.

Going forward, Capital Economics U.S. economist Andrew Hunter said he sees job growth as slightly improving in 2020, noting that the December number was not that bad.

“It is still at a pretty decent level, and it was enough to keep the unemployment rate at a 50-year low. It was generally pretty positive report,” Hunter said. “With the unemployment rate so low, it is unlikely that we are going to get job growth rebounding significantly back above 200,000 on a sustained basis.”

Hunter added that 2020 might kick off with the U.S. manufacturing sector still struggling and the service side holding up pretty well.

For gold, analysts see a positive environment developing, as they cite many an array of factors.

“We still see a generally supportive environment in the sense that macros are still pretty supportive. You’ve got low yields, inflation expectations are ticking up, and some question marks around the U.S. dollar strength,” said Butler.

Geopolitical and trade concerns should continue to support the yellow metal as a safe-haven investment, with gold averaging around $1,600 this year, noted Butler.

“Key things to watch will be how the risk rally plays out … We might be facing an interesting year where gold is supported as a safe-haven and a risk hedge, while the wider economy motors on,” he said. “Generally speaking, we are modesty optimistic on gold this year. Average is around the $1,600 — between high $1,500s and low $1,600s, but with a considerable range.”

Melek is expecting gold to trade slightly lower next week but remains optimistic on gold long-term. “Fairly crowded trade, there is a lot of longs in here. The macro data is still not bad and the trend for the quarter is robust,” he said.

U.S.-Iran tensions

Even though the U.S.-Iran tensions have been subsiding this week, analysts are carefully monitoring any further developments and their impact on the market.

Gold skyrocketed above $1,600 an ounce late on Tuesday following Iran’s attack on U.S. military personnel in Iraq.

“What we had this week was an illustration of gold’s safe-haven appeal, particularly in the aftermath of the Iranian airstrikes. Just as we’ve seen dialing back of the tensions in the Middle East, so to we’ve seen gold lose that $50-$60,” Butler said.

Melek said that there was still a good chance that the tensions could spark back up, which will benefit the yellow metal.

U.S.-China phase one trade deal

The big trade news next week will be a potential signing of the Phase One trade deal between the U.S. and China on Wednesday.

U.S. President Donald Trump told the ABC TV affiliate on Thursday that the deal would be signed on January 15 or “shortly thereafter.”

“We’re going to be signing on January 15th - I think it will be January 15th, but shortly thereafter, but I think January 15th - a big deal with China,” Trump said.

The U.S. president first announced the January 15 date in a tweet back on December 31.

What will be important to watch at the signing are any additional details about the agreement itself, said Hunter.

“At the moment, all we know is that the main component of the deal is that the U.S agreed not to impose further tariffs and China agreed in return to raise purchases of U.S. agricultural products. We are looking for any more details on that. It is not clear yet when they are going to release the full text of the agreement,” Hunter stated.

Data on the radar

From the economic perspective, inflation data will be key to keep an eye on next week with both consumer price index and producer price index reports due out on Tuesday and Wednesday, respectively. “The most important would be the CPI … and we have PPI,” said Melek.

There will also be manufacturing data to monitor. First on the agenda is the NY Empire State manufacturing index on Wednesday, followed by the Philadelphia Fed manufacturing index on Thursday.

“It is important because we’ve seen manufacturing not perform well. And we’ll see if this gets extended into the new year,” Melek pointed out.

On top of that, investors will be busy digesting U.S. retail sales data on Thursday, followed by U.S. housing data on Friday, including building permits and housing starts.

“We’ve got expectations that they are going to be okay here. A little bit of rebound in December. So, any disappointment there would be a positive for gold,” Melek added.

The data sets are vital to monitor as they give insights into future monetary policy direction by the Federal Reserve, which still has room to cuts rate further or introduce QE, explained Butler.

“The data points will give a good indication of the strength of the U.S. economy as we enter the new decade. The Fed is going be paying close attention to that. The Fed meetings coming up later on in this quarter will be interesting for forward guidance. They still have some room to play with in terms of rates,” he said. “We are looking for rates to remain on hold or possibly even lower and that could be augmented by some form of QE.”

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