(Kitco News) - Gold prices could rally next week if Friday's gains in the U.S. dollar fizzle out, market participants said.
Also, if fears regarding the European-debt situation build, that will increase gold's safe-haven allure, which might offset dollar strength if the greenback manages to hold firm.
Silver, meanwhile, is likely to stay range-bound as it is does not have the safe-haven allure gold does, plus it could find additional weight from a slowing global economy which would limit the industrial use of the metal.
August gold futures on the Comex division of the New York Mercantile Exchange settled at $1,529.20 an ounce, down 0.81% on the week, while July silver futures settled at $36.327 an ounce, down 0.37% on the week.
In the Kitco News Gold Survey , out of 34 participants, 21 responded this week. Of those 21 participants, 14 see prices up, while three see prices down and four see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
Gold prices fell on Friday as the U.S. dollar was broadly higher. Support for prices came from renewed euro-zone woes.
BNP Paribas said the euro couldcome under pressure in the days ahead, citing heightened concerns over sovereign debt issues. The bank said although the Greek cabinet has signed off of the latest round of planned austerity measures, the Greek opposition party has not and the public continues to protest. They also noted a story in the Wall Street Journal included more details regarding a EUR1 billion covered bond issue backed by Spanish regional debt that failed to sell last week. "With investors already cautious, the potential for contagion is clear," BNP Paribas said.
The euro-debt story will be front and center in the near-term and will likely drive currency moves, they said. "It may not be long before U.S. debt ceiling concerns knock the euro peripheral debt crisis out of the spotlight, but this is likely to be a late June/July story, not one for the next week or two," they added.
Commerzbank said despite the euro's weakness, precious metals prices have still made strong gains. "In gold's case, its character as a safe haven and store of value is clearly overweighing the prospect of higher interest rates and therefore opportunity costs of holding gold. The price of gold should therefore remain well supported," they said.
Jimmy Tintle, analyst at Transworld Futures, said part of the dollar's strength came from currency options expiration and that the dollar was benefitting from short-covering, rather than outright new buying. He said Monday's action in the dollar will be telling for short-term direction.
"We'll see whether or not we get any carry through on this rally," he said.
Charles Nedoss, senior market strategist with Olympus Futures, said in addition to dollar strength, weakness in crude oil and grains pressured gold. "You had the two markets most influenced by inflation come off," which weighed on gold, he said.
The dollar strength is likely temporary, Nedoss said, and because of that, gold prices could go higher next week. He said late in the day, gold prices moved off their lows even as the dollar's gains held and that was a bullish sign for the metal.
For next week, the inflation story will return as the U.S. producer and consumer price index reports will be released and that could underpin gold, too, he said.
Tintle said support for gold comes in around $1,520, with $1,500 the next area for support. He said he is neutral on gold's direction in the short-term, but said if the market can hold and rally, it could try and test $1,570. That's just shy of the all-time nominal high of around $1,577.
Gold could be range-bound until the Federal Open Market Committee meeting at the end of the month, he said. The market is likely waiting to see what Fed Chairman Ben Bernanke has to say regarding the quantitative easing program, which is slated to end this month. Market participants are waiting to see if he will conduct another stimulus program in light of slowing economic growth.
Ira Epstein, director of the Ira Epstein division of The Linn Group, said it's not unusual to gold to drift around in June and July and this could be the pattern this year, too, and that could mean steady to weaker prices.
He acknowledges that 2011 is not a typical trading year and the U.S. economy is doing poorly. That said, the main forces driving trading are already in the market.
"I don't see anything abnormal going on right now that should impact the 'norm.' The markets already know about the U.S. hitting its debt ceiling, sovereign debt issues in Europe, war in Libya, Yemen being out of control, Iran, Venezuela and Saudi Arabia splitting on oil output issues and so on. In other words while there can always be an unknown force coming into play, the above plays are known," Epstein said.
However, he added, after the summer winds down, gold prices could rally sharply, which has been the pattern for the metal since 2001, except for 2008.
"Past performance is not necessarily an indicator of future performance. It is but a tool traders should use in their trading arsenal. (Except) for 2008, gold has displayed a strong seasonal tendency to move higher after the June-July time frame. It's unimportant to me why it didn't rally in 2008 since there's 'always' some event that can alter the norm of things," he said.
Regarding silver, Tintle said there's little reason for silver to escape its current range between $34 to $38. "I'm pretty neutral toward silver until at least late June/early July," he said.
Fundamental news is lacking and with thoughts that global growth is slowing, silver is tied down by being considered more for its industrial use than for any safe-haven aspect, he said. He noted that silver has not been able to break above $38, while buying interest surfaces when prices slip to the $34 to $35. "That shows that $35 is a pretty good price for silver," Tintle said, adding he does not see the metal breaking the lows from the sharp sell-off in May. That figure comes in around $32.30.
By Debbie Carlson of Kitco News email@example.com