METALS OUTLOOK: Gold Seen Moving Higher Next Week

(Kitco News) - Gold prices could rise next week, supported by ideas of greater stability in Europe and better-than-expected economic data in the U.S.

In the Kitco News Gold Survey , out of 34 participants, 25 responded this week. Of those 25 participants, 21 see prices up, while three see prices down and one sees prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.

On the week, December gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,683 an ounce up 2.9% on the week. December silver settled at $32.173 an ounce, up 3.8% on the week.

Travis Rodock, senior futures analyst at efutures, said gold has been trading more like a risk asset lately, and it's been a "major benefactor of the higher U.S. equities market and a weaker U.S. dollar, so the bias for next week is higher."

There is a lot of optimism to end the week, Rodock said, given that Slovakia finally ratified the European Financial Stability Facility and that U.S. data, such as Friday's retail sales, came in higher than anticipated.

This more-positive market sentiment comes as the Group of 20 industrialized and developing nations meet in Paris Friday and Saturday. News reports suggest that nothing concrete will come out of the meeting; rather, the confab could be the building blocks for meetings next weekend between eurozone leaders and ahead of another G20 meeting in November.

Analysts at Brown Brothers Harriman said what will be watched is that the International Monetary Fund may allow a plan to make short-term credit lines available to fundamentally sound countries and for discussions about developing nations kicking in more money to the IMF, which would be used to increase lending to Europe. "These are important steps to help shore up some of Europe's banking ails but in our view for now these are just discussions, which are unlikely to be officially announced or more importantly acted on until the official summit on Nov. 3," BBH said.

James Steel, analyst at HSBC, said gold markets will continue to be on watch for any developments related to the eurozone debt crisis. Steel said the European Union is expected to hold a summit on Oct. 23 to review further measures to protect euro-zone banks from any potential Greek debt default.

Rodock said for gold to continue to move higher, next week's U.S. economic data needs to continue the trend of upside surprises.

Phil Streible, senior market strategist at MF Global, said there are several economic reports due out next week that could give the gold market price direction. Among them are manufacturing reports - the Empire State Index due out Monday and the Philadelphia Fed Index due on Friday. Further, the producer price and consumer price indexes, both inflation gauges, are set for release Tuesday and Wednesday, respectively. Given Friday's data noting higher inflation in Europe, the markets might key in on these two reports more than usual.

Streible said a close over $1,690 would be bullish and could lead to a move to $1,740. "We're trading on the inflation play," he said.

Support for gold comes in at $1,650 and a close below that area could take prices to $1,605.

"We're at a pivotal point right now. The EU is gaining in confidence, and people are still unwinding short euro/long gold plays, so that's limiting the firepower gold has right now," he said.

Not everyone thinks gold has potential for higher prices next week. A few market watchers said they've been disappointed by how gold is acting in its current range between $1,650 and $1,700. Barclays Capital technical analysts pointed out that daily volume is falling, which suggests "that the up move is unsustainable. We look to fade gains against the1730 area, targeting a move toward 1580," they said.

Silver remains hamstrung by the high margins the CME Group set earlier this year when prices were extremely volatile, Streible said. The market remains in a fairly large trading range, he said, with rallies getting sold around $33-$34 and breaks under $30 bought. "The problem is we're just not seeing the participation in silver. With margins near $25,000 a contract, people aren't there. And because there are fewer participants, you're seeing wider ranges," he said.

Regarding the platinum metals group, the occasional sparks of positive news from the auto industry is underpinning those prices. Streible sees palladium as a better value play right now than platinum, citing the premium gold continues to have over platinum.

By Debbie Carlson of Kitco News

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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