(Kitco News) - The unrest in the Mideast is flaring again, sharing the news spotlight with the tragedy in Japan, and that is expected to underpin gold prices going into next week.
Sterling J. Smith, commodity trading adviser and market analyst with Country Hedging, said after gold's break earlier this week on the devastation in Japan, the market is ready to rebound.
Gold did not act as a safe-haven during the Japanese earthquake, tsunami and nuclear worries. Prices fell during the early part of the week and analysts attributed the break to investors selling gold to raise cash in order to shore up positions in other markets that were falling after the news in Japan. By Friday, gold rebounded with other markets.
"There's a little bit more risk appetite coming back into the macro theater and gold is benefitting from that," Smith said.
April gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,416.10 an ounce, down 0.4% on the week. May silver settled at $35.058 an ounce, down 2.44%.
"We've come back nicely. We went down to $1,380 and people are willing to buy breaks. It's still a bull market, although a more mature bull market," said Frank Lesh, futures analyst at FuturePath Trading.
The most supportive factor for gold has been the unrest in the Middle East, Lesh said.
Gold prices saw an uptick after the United Nations Security Council authorized Thursday a "no-fly" zone in Libya that included "all necessary measures" to enforce the decision. By Friday morning U.S. time, Libyan leader Moammar Gadhafi declared a cease-fire on its attacks on rebels seeking out oust him from more than four decades of power. Following the announcement, gold prices slipped from earlier levels.
Even though there is a cease-fire in Libya, violent protests have broken out in Yemen, where the government has declared a state of emergency, and Smith said there are plenty of other events for gold to help "fill the void."
"With the tensions in the Middle East, it's like playing 'Whack-a-mole.' (Tensions) settle in one region, only to pop up in another," he said.
Currency volatility also underpinned gold, Lesh said. Central banks intervened jointly to stop the rise of the Japanese yen, the first time in 10 years, a move that was expected. Meanwhile the dollar has turned back down, supporting gold and other commodities. "People are still using gold as an international currency," he said.
Over the course of the month, Smith expects gold to rise to the $1,470 to $1,480 level.
Goldman Sachs said Friday in a research note that the pullback in gold prices following the devastation in Japan offers investors a chance to buy the yellow metal at lower prices. They said gold prices should continue to rally and they are maintaining their three-month target of $1,480.
Rich DeFalco, president, West Cooper Asset Management, also is looking for $1,480 in the next three months, calling himself "totally bullish right now."
"Gold is still a good investment…. Why? Real interest rates in the U.S. are still negative," he said.
For platinum group metals, though, Goldman said much depends on how Japan quickly can recover. PGM prices fell sharply this week because automotive manufacturing in Japan was curtailed. Goldman noted Japan is key to the global auto production. "Not only does Japan account for 12.6% of global automobile production, it also accounts for a large share of global industrial PGM consumption: 16.4% for platinum and 18.1% for palladium in 2010," the bank said.
On the U.S. economic calendar for next week are new and existing home sales, durable goods and revision to fourth-quarter gross domestic product. Smith said there should be little here to affect metals.
While he is bullish on gold, silver is giving him some concern. "The (gold/silver) ratio is tightening to an area that I'm not comfortable with," he said.
The ratio is around 40 and represents the number of ounces of silver it takes to buy an ounce of gold. When the ratio falls it's because silver is outpacing gold.
He said silver's price might be "overheating" and he cites action in copper for this view. Silver can be used as both a precious and industrial metal while copper is mostly used in fabrication. Recent price gains for both have reflected a rebound in global manufacturing, analysts said.
However, copper prices tumbled over the news from Japan and Smith pointed out the Chinese central bank said Friday lenders must raise reserve requirements. That will help slow down China's high-growth economy and could curtail its commodity usage.
"We're looking at a summer slowdown in copper use and it could go back down under $4 (a pound) to maybe the $3.70s. Heaviness in copper will weigh on silver," he said.
He said he's not necessarily looking for silver to correct, but said it might show more "sideways" action. Resistance for silver is seen between $35 to $35.50 and then around $36.
By Debbie Carlson of Kitco News firstname.lastname@example.org