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Europe, Global Economic Growth May Dominate Headlines Again Next Week




By Debbie Carlson
Of Kitco News
http://www.kitco.com/

Europe’s political uncertainty and worries about global economic growth may dominate headlines next week and how the U.S. dollar performs will determine the direction of precious metals.


Prices were lower on Friday and on the week. The most-active June gold contract on the Comex division of the New York Mercantile Exchange fell Friday, settling at $1,584 an ounce, down 3.72% on the week. July silver fell Friday, settling at $28.89 an ounce, down 5.07% on the week.

In theKitco gold surveyout of 33 participants, 24 responded this week. Of those 24 participants, nine see prices up, while seven see prices down, and eight are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.


Prices on Friday were pressured by weak Chinese economic data, underscoring worries about global economic growth. Further pressure came after banking giant J.P. Morgan said it lost $2 billion in complex interest rate hedges. That pushed investors to seek safety in the U.S. dollar, which weighed on gold and other markets.


Following this week’s sharp sell-off in precious metals and other markets, traders are being cautious. There’s no strong consensus where prices may go in the short-term, but overall analysts have said longer-term they remain bullish on metals. The losses this week prompted several banks, including BNP Paribas and Barclays, to lower outlooks for precious metals.


Looking ahead to next week, politics will remain in the headlines. On Sunday, elections in Germany’s most-populous state, North Rhine-Westphalia, will occur, with political pundits suggesting that Chancellor Angela Merkel’s party will lose the election. Greece will remain on the radar as a coalition government still has not been formed after last week’s elections.


“The political situation in Greece remains uncertain, but a deal to form a unity government in the coming days would be a positive surprise and avoids new elections in June. This may provide a temporary boost to the euro, but we advise selling into rallies to position for a steady grind lower over the coming weeks,” said analysts at Brown Brothers Harriman.


For economic news, on Tuesday gross domestic product data from the eurozone area will be released and is likely to show the region is in recession, confirming what most people already suspect.


Also on Tuesday, market watchers will look to see where U.S. consumer inflation came in at in April, especially after the drop in wholesale inflation data on Friday. Analysts surveyed by MarketWatch look for the overall and core consumer price index to show a 0.2% rise in inflation.


Daniel Pavilonis, senior commodities broker with RJO Futures, said he sees further weakness for gold. “With the J.P. Morgan news, I see it getting a lot worse (for banks)…. There’s the scare factor and I see flight to quality continuing into the dollar next week and no QE3 (third quantitative easing),” he said.


Market participants said with gold holding under $1,600, there has been some interest in buying physical metal, but it hasn’t been a groundswell. Earlier this week Edel Tully, UBS precious metals strategist, suggested there might be greater interest to by around the $1,550 region. That would mean further weakness for the metal, given where prices settled Friday.


Nomura analysts listed a few signs that might signal the end of the current weakness of gold including the metal not being correlated with the euro, prices rising during Asian trading hours and inflows into exchange-traded gold funds.


“In spite of the recent bearish price action, our long-term view remains bullish. There are several factors for this, including the continued low-rate environment. Furthermore, we think that gold is likely to benefit as a tail-risk hedge, related to increasing uncertainty surrounding the eurozone situation, even if at the moment it is (not),” they said.


Not everyone sees lower prices ahead. A few market watchers said given that gold is holding around the $1,580 area, the market could try to rebound next week and test the $1,600 area. If it can break through that ceiling, the next area of resistance would be the April intraday low of $1,613, said Richard Baker, editor of the Eureka Miner.