Sunday, 11 March 2012 12:46
by Debbie Carlson of Kitco News
Gold Could See Potential Bounce Next Week, But Market Watchers Cautious
(Kitco News) -- After the recent volatility in gold, some market participants believe the yellow metal could see a rebound next week, but overall their tone is cautious given jitters in the Middle East, technical charts and Tuesday’s monetary policy meeting.
Prices were higher on Friday and mixed on the week. The most-active April gold contract on the Comex division of the New York Mercantile Exchange settled at $1,711.50 an ounce, up 0.1% on the week. May silver settled at $34.525 an ounce, down 0.9% on the week.
In the Kitco News Gold Survey
, out of 32 participants, 21 responded this week. Of those 21 participants, 11 see prices up, while six see prices down, and four are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Gold’s close over $1,700 helped fuel some thoughts that the metal could see a bit of a near-term bounce. Weekly closes that show gains on the week can sometimes spill over into the first part of the next week if momentum can be sustained.
Traders attributed the rise in gold prices in the middle to later part of Friday to news that Israel’s military said it killed a senior Palestinian militant leader in an air strike. Tensions in the Middle East have been high as saber-rattling between Iran and Israel remains heated and Western nations keep sanctions on Iran over its nuclear program.
The airstrike news lifted crude oil prices and gold prices
tagged along for the ride.
Gold wasn’t up for the entire session as the February unemployment data came out slightly better-than-expected, with U.S. nonfarm payrolls rising by 227,000. Gold had weakened on the news in early dealings. This was a “solid” figure, Nomura analysts said, and the recent trend in higher jobs figures could be mentioned in Tuesday’s Federal Open Market Committee meeting.
“A third straight month of 200,000 plus job gains will likely result in an upgrade of current labor market conditions in the statement following the one-day meeting of the … FOMC. However, we don't expect any change in the committee's assessment that the unemployment rate remains ‘elevated,’” they said.
What that means is that the chance of a third round of quantitative easing from the Fed may be further off, market watchers have said. Gold (and other markets) have been supported by all the liquidity sloshing around the globe and without another round of stimulus – or a military intervention, gold might struggle at upper levels.
Frank Lesh, broker and futures analyst with FuturePath Trading, said central bank action is important. “Watching the central banks will be most important for the long term as they created the lows over a decade ago when they were done selling and they will create the highs when they are done buying,” he said.
Lesh said the overall trend for gold remains up, but for next week he sees the market in a range, unless equities can rise. “Traders are also viewing gold as a ‘risk on’ trade - as the correlation with equities can be strong as well - and with equities stable and rising, traders will buy gold,” he said.
Peter Thomas, director of business development PFG Precious Metals, said his bullion customers are looking long-term with their investments and haven’t been willing to chase gold rallies.
“It’s interesting, a lot of people had backed off buying on the rally (earlier this year) because they got hammered (last fall), so things had been quiet. People started to come back in when we had the $100 break in gold and the $1 break in silver. It seems a lot of them are saying ‘the fundamentals have not changed at all. Greece is kind of OK, but there are problems in Europe. It seems the investor has become a little more sophisticated. They’re buying on the breaks….. The $1,500 to $1,700 area is where they want to be,” he said.
Richard Baker, editor of the Eureka Miner, said unless there’s an escalation of tensions in the Middle East, gold could try to test the $1,650 area next week. He cited the positive U.S. jobs data, Greece avoiding a hard default and the U.S. dollar trending stronger against both the euro and the yen. Baker watches correlations between the different commodity markets and said if gold prices drop to $1,650, that could mean Nymex crude oil could trade in a range of $99 to $104 a barrel, silver could trade between $31 to $33 and copper between $3.70 to $3.90 a pound.
Platinum prices have come off their highs since the strike at Impala Platinum’s Rustenburg mine was settled. It’s estimated that 120,000 ounces of supply were affected when workers downed tools for the several weeks the strike was on.
Thomas said so far the physical market hasn’t seen the impact of the strike. Actually, he said, his firm has finally started to receive some supply from official sources out of Canada and Switzerland. Late last year physical platinum supplies were tight despite prices having fallen as low as $1,347.60 an ounce basis the April Nymex contract on an intraday basis on Dec. 29.
“We’ve been able to restock the vaults. The impact of the Impala strike … could take some time to be felt. But really it all depends on demand. If the economy is picking up and auto sales grow then (aftereffects) the strike could really push things higher,” he said.