|METALS OUTLOOK: Looking For Gold To Retain Gains Next Week |
29 June 2012, 2:15 p.m.
By Debbie Carlson
Of Kitco News
(Kitco News) - Gold’s stout rally Friday on the back of news that European Union banks will get some help could spillover to next week, with many market observers watching to see how the metal behaves now that it is back over the $1,600 an ounce level.
Prices were higher on the day and the week. The most-active August gold contract on the Comex division of the New York Mercantile Exchange rose Friday, settling at $1,604.20 an ounce, up 2.38% on the week. September silver rose Friday, settling at $27.612 an ounce, up 3.32% on the week.
In the Kitco gold survey, 24 responded this week. Of those 24 participants, 14 see prices up, while four see prices down, and six are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Gold and other markets rose sharply on Friday, buoyed by news out the EU Summit that allowed some help for troubled banks. Because of the news, the U.S. dollar fell as traders took a “risk-on” stance. Market observers said the most important piece of information out of the deal is that the European Financial Stability Facility and European Stability Mechanism will be used to support sovereign debt. That will help recapitalize struggling banks.
Edward Meir, commodities consultant with INTL FCStone said this news is supportive for gold and other precious metals because German Chancellor Angela Merkel capitulated and allowed some of the stimulus measures. It might be a sign that markets could expect further expansion of easier monetary policy down the road, he said.
“I see this (EU news) supporting markets for a while. The market rally may eventually fizzle out, but I see this lasting a bit long, at least until August when the markets will demand a bit more action…. It wasn’t everything they wanted, but net-net I see metals higher next week,” he said.
Yet Meir said he doesn’t expect gold to move out of its recent range of support at $1,520 area and resistance around $1,640.
Technical chart analysts are keeping a close eye on moving averages for gold, as the rally back to the $1,600 area pushed the metal in contact with short-term moving averages. The 10-day average is at $1,589.20, the 20-day average is at $1,600.70 and the 50-day average is at $1,604.10. August gold’s close above all of those levels is a good omen for bulls, said Charles Nedoss, senior market strategist at Kingsview Financial.
The news about more financial help for troubled eurozone countries was a surprise and secured strong gains for markets, but some market watchers are not sure how long Friday’s strength can last.
Because much work is left to be done, other market participants said the gains in riskier assets such as equities may be short-lived. Further, the U.S. dollar may rebound and that may put pressure on commodities, including gold.
“Given the euro zone weak economic fundamentals and the potential for a rate cut at next week’s ECB (European Central Bank) meeting, we expect the euro to remain under pressure,” said Brown Brothers Harriman analysts.
Looking ahead to next week, market participants said they are expected lighter volumes because of public holidays. Canada will be closed on Monday for Canada Day, while the U.S. is closed on Wednesday for Independence Day. Sometimes shortened work weeks cause slow trade in tight ranges, but sometimes the lack of market participants can cause trade to be more volatile.
In addition to the ECB meeting, the Bank of England also meets with odds high that there will be sort of easier monetary policy. In the U.S., the June unemployment data will be released.
Meir said he is not looking for any surprises out the of the U.S. jobs data. A survey of economists by MarketWatch estimates the unemployment rate will hold at 8.2% and 100,000 jobs will be created.
If the data comes out as expected, gold could be stable as the market might hope a less-than-stellar report would encourage ideas of potential stimulus from the Federal Reserve, he said.
“Anything that shows a slowdown of the economy would hint at easing,” Meir said.