Gold could see some mercurial trade to start off the week as Comex December gold options expire on Monday, adding another dimension to the week’s action. The market may also see some last-minute positioning ahead of the Nov. 30 Swiss gold referendum.
December
gold futures rose Friday, settling at $1,197.70 an ounce on the Comex division of the New York Mercantile Exchange, up 1.02% on the week. December
silver rose Friday, settling at $16.395 an ounce, up 0.5% on the week.
In the Kitco News Gold
Survey, out of 36 participants, 23 responded this week. Of those, 14 see prices up, while six see prices down and three see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
Gold saw a volatile trading this week, ultimately closing the week higher and notching a third straight week of gains. A surprise interest rate cut Friday by China pumped up the yellow metal, traders said. The People’s Bank of China cut the one-year benchmark lending rate by 40 basis points to 5.6% and the one-year deposit rate by 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.”
Gold managed a rise above $1,200 even as the dollar gained on the Chinese news and as the European Central Bank started to buy asset-back securities as part of its stimulus program.
George Gero, vice president with RBC Capital Markets Global Futures, said gold attracted some buying when it rebounded over $1,200.
“There were too many negatives priced in the past two weeks,” he said about why gold bounced on Friday.
Gold will start out the week watching Monday’s options expiration for the December contract, and it could lead to some volatility, Gero said. Option strike prices that are “in the money” or are the same value as the current futures price will become futures after the expiration.
“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,” he said.
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, he said. Ahead of first notice day traders need to eventually exit futures positions of the spot month according to exchange rules.
Later in the week, analysts said they’ll watch to see what eurozone inflation data shows. Inflation has remained tame, which doesn’t support gold, analysts said, and eurozone inflation has been particularly soft.
In the U.S., third-quarter gross domestic product data is set for release, and analysts at Nomura expect it will come in at 3.5%, which is unchanged with the preliminary reading.
Robin Bhar, head of metals research at Société Générale, said those two data sets will likely underscore the current view of a stronger U.S. economy versus a weakening eurozone.
“I think the theme will still be U.S. growth, and the Fed (Federal Reserve) is ooh-ing an ahh-ing about being data dependent, and it (stronger data) could cause the Fed to have to raise rates down the road, which would weigh on gold,” he said.
Thursday is the Thanksgiving holiday in the U.S. and markets are closed. Trading volume could slow as the week nears Thursday, and Friday is often taken as a day off to extend the holiday. Markets are open as usual on Friday.
Bhar said in addition to Thanksgiving, there are a couple of other holidays next week, too. He said it’s possible that gold prices could try to consolidate at higher values amid the lower volume; however, he said the light trading volume could mean a greater chance for whippy action.
“It could allow Asian (traders) to bully the market down. We’ve seen some heavy selling in the Asian time zone and we know the liquidity … is thin,” he said.
Gero and Bhar both said next week’s OPEC meeting on Thursday will be a key event, too. Crude oil prices have fallen sharply as China and the eurozone use less oil because of struggling economies there. On top of that, U.S. shale production is at 30-year highs, so the globe is awash in oil. So far Saudi Arabia has been cool to the idea of cutting production to support prices, so people will be watching this meeting to see if the cartel decides to cut output.
“If there are production cuts, it could lift oil prices and support gold as it would be mildly inflationary, but if they don’t cut to shore up production that could be another negative for gold,” Bhar said.
Traders could position themselves ahead of the Nov. 30 Swiss gold referendum vote, said Ira Epstein, of the Ira Epstein division of the Linn Group. The ballot measure calls for the Swiss National Bank to not sell any more gold, have all Swiss-owned gold housed in-country and require that 20% of the SNB’s assets be in gold bullion.
Polls taken ahead of the vote show the “no” side with the edge and the gold market moved to its low for the week when the most recent poll came out Wednesday.
“The swings (in the market ahead of the vote) are and will continue to be fairly wild unless the poll results widen in favor of the ‘no’ vote,” Epstein said, who added he believes the measure will fail.
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