Gold futures weekly recap, September 22 – September 26

Gold futures logged a relatively steady week, despite recording a nine-month low. Air strikes in Syria failed to spook the markets, while upbeat economic data in the US boosted the dollar, applying further pressure on the precious metal. Investors now look to key US employment figures next week, as the primary gauge for the strength of the economy, and outlooks for the dollar.

Gold futures for delivery in December dropped 0.53% on Friday, closing at $1 215.4 per troy ounce, little changed from the week before. Weekly high and low were at, respectively, $1 237.0 on Tuesday and $1 206.6 per ounce on Thursday, which was also a nine-month bottom. The contract dropped ~1.3% last week.

The US dollar climbed to a new four-year high against a complex of other major currencies this week, after receiving generous support from US economic data. The strong US currency weighed heavily on the whole precious metals complex, pressuring futures to multi-month lows.

A rising US currency makes dollar-denominated commodities, such as gold, more expensive, and less attractive, to holders of other currencies.

Final readings on US GDP growth for the second quarter of 2014 were released today, meeting expectations of a 4.6% growth on an annual basis, logging a 4.1/2-year high and reinforcing confidence in the recovery of the US economy.

Earlier, readings showed new home sales in the US surged 18% in August to reach the highest annualized rate in six years at 504 000. The figure is a leading indicator for the strength of the retail market, which is the largest single sector in the US economy, accounting for 13% of US GDP, and as the reading thrashed expectations, the US dollar surged.

Durable goods orders did rebound after last month’s all time-high increase, for a monthly decrease of 18.2%, largely as expected. Orders soared 22.6% on a monthly basis in July on the back of massive orders for Chicago-based airplane-manufacturer Boeing. Still, the drop in August is significantly smaller than the jump was in July. Meanwhile, weekly initial jobless claims were logged better than expected, clocking only 293 000 fresh applications.

Betting on an improving recovery in the US, the Fed announced a steeper-than-earlier rate rise in 2015 last week, heavily supporting the US dollar and weighing on dollar-denominated commodities, such as gold.

The Federal Open Market Committee (FOMC) September meeting produced another $10bn cut in monthly government spending on quantitative easing (QE), keeping on track to close the program at its next meeting. Meanwhile the central lending rate was also kept at 0.25%. However, the targeted rate by the end of 2015 was increased from 1.125% to 1.375%, boosting the greenback to a new four-year peak.

Meanwhile, the strengthening of the dollar was further supported by weakness in the greenback’s top competitor, the euro.

A string of weak economic data prompted the European Central Bank (ECB) to trim the central lending rate to the historic low of 0.05% earlier this month and set the stage for a €3tn stimulus program. The news, and the following further downbeat economic data, pressured the euro to a two-year low against the dollar this week.

“Gold could fall below $1,200, but I maintain a cautious optimism that it wont break below the $1,180 area,” Saxo Bank manager Ole Hansen said for Reuters. “The dollar has been strengthening on the weak economic outlook for Europe and relatively hawkish expectations for interest rates in the U.S., and in that sense the jobs report next week is really important.”

IS strikes, SPDR

Elsewhere, US-led air strikes on Islamic State (IS, ISIS, ISIL) targets in Syria intensified, with the coalition targeting the insurgent’s refineries, in a bid to limit the group’s funding capabilities.

The broadening of action against ISIS, now including the UK and France, was thought to spur some haven demand, but it has so far failed to spook markets. Investors seem to regard the actions as positive for the security of the region, shrugging off the only force on the bull side lately.

Reflecting the lowered investor interest in the precious metal, the SPDR Gold Trust, the largest exchange-trade gold fund, saw its bullion assets drop to 772.25 tons, the lowest level since December 2008.

Goldman Sachs’s Jeffrey Currie maintained the bank’s forecast for gold to drop to $1 050 by the end of 2014.

Next week

Next week will see plenty of data for traders to gauge growth outlooks in top economies.

Key US employment data and a European Central Bank meeting will highlight the important events due through October 3rd. More US housing data, factory orders and a key consumer confidence gauge, alongside retail sales, employment and CPI figures for the EU will cover a plethora of economic activities on both sides of the Atlantic.

Do you think gold is set to drop below $1 200 next week?

Share your thoughts in the comments below.