Markets

Analysts Mixed On Gold Next Week; Technical Factors Cited Both Ways

(Kitco News) - Gold futures are roughly in the middle of their trading range from recent months, and as the consolidation continues, analysts are mixed on which way they think the metal is likely to chop in next week's trading.

Eighteen of 34 participants responded in the latest weekly Kitco News gold survey . Of those, seven see prices up, while nine see prices down and two see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

February gold futures settled at $1,716.80 an ounce Friday on the Comex division of the New York Mercantile Exchange, down $34.50 for the week. March silver finished at $32.253 an ounce, a loss of 43.3 cents since last Friday.

Since early September, the gold contract has been in a range of $1,925.10 to $1,543.30. The market has consolidated in an increasingly tighter wedge formation since, meandering between $1,806.60 and $1,670.50 since the start of November and holding within a $1,704.9-$1,760.50 range this week as of the pit close.

The two-sided trade has even resulted in mixed opinions on the technicals.

Charles Nedoss, senior market strategist with Olympus Futures, looks for gold to uptick after its ability to hold around the $1,700 support area this week, particularly during heavy selling on Thursday.

"We're at the low end of the (recent) range. So I'm going to say we're higher at the end of next week," Nedoss said. The area around "$1,700 is psychological support. We keep coming down there and holding on, so I think you're seeing some value seekers in that area."

Nevertheless, Darin Newsom, DTN senior analyst, fears technical pressure will hit gold, with the market close to support after being turned back from overhead resistance this week. If February gold breaks down through the nearby support, he said, there is scope for a retest of the $1,670.50 low from Nov. 21.

Still other analysts pointed out that the near-term technicals picture is dented with February gold below its 20-day moving average, which stood just below $1,734 as the Friday pit session ended. Some traders also pointed to declining volume, typical ahead of year-end, as a near-term factor likely to hold prices back.

For now, gold is not attracting the safe-haven flows of the past when the world focused on debt issues, some observers said. But others see potential for market participants to return to gold as a store of value, particularly if traders see more worrisome headlines about sovereign debt around the world.

"At the moment, we've lost a bit of the flight to safety," said Frank Lesh, broker and futures analyst with FuturePath Trading, who looks for steady to lower prices next week.

"The market remains nervous about the European debt situation. But our worst fears (about Europe) have not been realized. The eurozone at the moment is not breaking up. Whether they will or not next year is still in question, but for the moment, the markets have been appeased by this new (proposed) treaty.

"They have managed to put a Band-Aid on the wound and stabilize the patient for the time-being. So it looks like we go into next year with the Euroland intact - in trouble, but intact."

European leaders announced an agreement overnight on deeper financial and economic integration, including tighter anti-deficit rules and with sanctions for those who do not follow them. Countries will make an additional 200 billion euros available to the International Monetary Fund so it has resources to deal with the crisis, and the European Stability Mechanism, a new bailout fund, will go into effect sooner than previously planned.

Still, Zachary Oxman, managing director of TrendMax Futures, sees potential for European worries to escalate again, leading to buying of gold.

"I think there are going to be the inevitable credit downgrades in a number of European sovereign nations and a continued worry across the board of currency printing," he said. "The store-of-value trade, I think, is going to take hold and grab. We're going to see higher highs and higher lows. We built a very firm base around $1,705 to $1,700 this week.

"Another factor that could hold back gold in the short term, at least, is year-end profit taking and book squaring, analysts said. Speculators in the New York futures market remains net long in gold and silver, even though they have pared that net length from earlier in the year.

"They quietly sell into rallies (to book profits)," Lesh said. "You don't just wholesale liquidate…We are seeing liquidation by some of the longs, especially on the futures side of thing."

But while gold could continue to consolidate, Lesh also cautioned that "we could really shoot up" if traders are unsettled enough by any breaking news. "The market does remain nervousness and people remain ready to jump back in if they need to," Lesh said.

By Allen Sykora of Kitco News; asykora@kitco.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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