 | METALS OUTLOOK: Weaker Trade Possible In Gold If Financial Markets Stabilize
12 August 2011, 2:43 p.m.
By Debbie Carlson
Of Kitco News
http://www.kitco.com/ |
(Kitco News) - Gold prices could see some weakness next week if equity and other financial markets stabilize and concerns about the public indebtedness ease somewhat, market watchers said, but losses could be limited.
After reaching an all-time high of $1,817.60 an ounce for the most-active December gold futures on the Comex division of the New York Mercantile Exchange, gold prices fell. Market watchers said the rebound in the equity markets and the CME Group’s decision to raise margins on gold futures helped to cut some of the gains in gold. The CME Group is the parent of the Comex.
The most-active December contract was trading late in the day around $1,742.60. While that is down on the day, it is still up about 5.5% on the week. September silver was trading late in the day around $39.114 an ounce, up on the day, and up about 2.3% on the week.
In the Kitco News Gold Survey, out of 34 participants, 23 responded this week. Of those 23 participants, four see prices up, while 14 see prices down, and four see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts
“Gold is currently overheated after a very sharp rally that was very terse in nature, which left it vulnerable to profit-taking,” said Sterling Smith, commodity trading adviser and market analyst with Country Hedging.
For next week, gold’s direction will be dependent “entirely” on how the equities trade, Smith said. The equity markets in Europe received some support from a short-term ban on short-selling by France, Italy, Belgium and Spain. Once that ban is lifted, stock markets could become heavy again because of banking worries there, he said.
He wouldn’t be surprised if gold trades down to the $1,650 area, but said “I would be a very interested buyer there, depending on the condition of the world at that time.”
Jimmy Tintle, analyst at Transworld Futures, noted there is a gap on technical charts around $1,650, which is why some traders believe gold could pull back to that level. He doesn’t think gold prices will fall that far.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said market watchers should keep an eye on the meeting next week between France and Germany to help calm markets. “If (German Chancellor Angela) Merkel and (French President Nicolas) Sarkozy fail to propose fresh initiatives next Tuesday; if they merely recommit to the July 21 agreement, they risk adding to the market turmoil. Increasing the size of the EFSF (European Financial Stability Facility), agreeing on a European bond are interesting possibilities, but something bolder would be better. The problem with bolder moves, however, is the weak political base and the treaty and constitutional barriers to fiscal union,” Chandler said.
Tintle also said there are several U.S. economic reports out next week which could give traders a sense of how the economy is faring. “Given the debacle we had this week, next week’s economic reports could give us a sense of just how the economy is doing. If the reports are good, gold prices will go down. But if the reports are bad or mixed, that could support gold prices,” he said.
Given the weakness in gold, some market watchers wonder if gold will see the same break as silver did when the CME Group raised margins. Keep in mind that so far the CME Group has raised margins only once so far in gold, but did so several times in silver. Brian LaRose, technical analyst at United-ICAP, noted several levels of support gold prices need to hold to avoid seeing a sharp break or change in trend. The first support ranges between $1,710 and $1,735, he said. Gold has been in a solid move higher from its lows around $1,478 and for the metal to continue on that rally, it needs to hold support, he said.
Critical support is at $1,550 and if gold prices break through that level, then he said gold prices may have peaked.
That level is distant -- so far – and other technical analysts have said the $1,680 to $1,650s area offers a closer level of near-term support.
In silver, LaRose said critical support is at $34.437 and if that level is broken, it might be a sign silver has peaked for now.
Tintle said regarding silver, if equities can rally, silver will be strong, too. Silver is trading more on its industrial usage qualities and less on its safe-haven allure. He said support for the metal is seen around $37 basis the September futures contract. Below that support comes in at $33.50.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif)
![Live New York Gold Chart [Kitco Inc.]](http://www.kitco.com/images/live/nygold.gif)
