Gold could continue to benefit this week on China turmoil

Last week, gold's rally started Wednesday afternoon as the market reacted to "dovish" minutes from the July FOMC meeting which indicated that some committee members were concerned what impact China’s slowing economy, as well as the global stock market selloff, could have on the U.S. economy.

Last week's rally helped gold wipe out previous losses. Comex December gold futures ended Friday’s session at $1,159.60 an ounce, up more than 4% on the week.

Although silver continued its winning streak for four weeks, its momentum could be waning as prices close Friday at $15.301 an ounce, up just less than 0.5% since Monday.

Some analysts have noted that the comments were made in July, and after that conditions even worsened which pushed China to devalue its currency. Many economists expect continued financial turmoil in China to prevent the Federal Reserve from lifting rates in the short term, which would be U.S. dollar negative and gold positive.

Adam Button, currency strategist at Forexlive.com highlighted that the yellow metal has once again captured the imagination of the market.

“Uncertainty about what the Fed will do in September has left traders with a severe case of indigestion and looking for a safe place to ride out the month ahead.”

Various analysts expressed their optimism in respect of gold.

David Madden, market analyst from IG Markets, said the metal's latest dip from mid-June to July, which dragged prices from around $1,200 an ounce to a new six-year trough at $1,072.30 an ounce, was mainly caused by expectations that the Fed would start lifting rates in September. However, he now thinks that the metal has space to move higher in the near-term.

China’s economic problems, in his opinion, are only worsening as the latest data indicated that the country's manufacturing sector fell to its weakest point in six-and-a-half years.

“The real issue that is going to impact gold this week will be data coming out of China," Madden said.

Senior market strategist at CMC Markets Colin Cieszynski commented that although the market has space to edge higher over the shorter term, he thinks there has been too much emphasis on China’s economic woes and he doesn’t expect that it will have a major impact on the Fed’s decision to raise interest rates.

While the Asian nation is playing an important role in monetary policy expectations, Phillip Streible, senior market strategist at RJO Futures, considers that there are other factors in the global marketplace that could help gold maintain its renewed momentum..

“Continued weakness in equity markets, weakness in China and political uncertainty in Greece: all of these have the potential to boost gold higher next week,” he said. “Momentum is on the bulls’ side.”

The 200-day moving average, at $1,189 /oz, could be the next bulls' near-term target, according to the analyst.