(Kitco News) - Gold prices could rebound next week after sharp losses the past few days, but strength could be tenuous at best as the yellow metal will need to attract bargain shoppers and to dodge the hurdles of a shortened holiday trading week in the U.S. and the risky assets climate in Europe.
On the week, December gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,725.10 an ounce, down 3.5% on the week. December silver settled at $34.417 an ounce, up 0.76% on the week.
In the Kitco News Gold Survey, out of 34 participants, 24 responded this week. Of those24 participants, 13 see prices up, while 10 see prices down and one sees prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
Gold prices traded quietly on Friday, following sharp losses this week as investors grew more nervous over financing problems in the eurozone and sought the U.S. dollar. This surprised many long-time market watchers as gold did not perform its usual role as a safe haven asset and instead fell as stocks and other commodities tumbled.
Market participants who see higher prices next week said that with gold in the lower-end of the $1,700s region, that might inspire some bargain-type buying, which would put a floor under prices. If prices can stabilize, they add, that would encourage some short covering in the futures market.
A few noted that next week is the U.S. Thanksgiving holiday, which means volume will likely start to diminish by mid-week. The holiday is on Thursday and the Comex is closed that day. Trade resumes on Friday, but traditionally, many traders extend the holiday by an extra day. Veteran market watchers said just because volume recedes, volatility doesn’t necessarily fall – sometimes it can become more pronounced so they do warn investors to be vigilant to wild swings.
Overall, market watchers who expect higher prices said ultimately the developments in the eurozone are supportive for gold prices, especially if the European Central Bank ends up crafting a stimulus program to help out strapped southern-tier countries and their banking system.
This uncertainty has hammered the euro-dollar spread, and that’s put pressure on markets.
Deutsche Bank said the dollar strength has become “a dangerous development” for the precious metals complex as a whole. The bank said the main support for gold will come from central bank buying as “unlike previous episodes a stronger dollar environment is not being accompanied by inflows into physically backed gold ETFs.”
And central banks have been buyers, as noted by the World Gold Council in its fourth quarter research note released earlier this week. Central banks are net buyers as they seek to diversify their holdings.
While some market participants said gold could rebound, that’s definitely not unanimous. Many are worried about further weakness. There are several market watchers who are concerned that the sharp sell-off prices experienced this week will, in the short-term, beget more selling. Among them is Dennis Gartman, editor of the eponymous newsletter, The Gartman Report.
He said there are fears that more selling could come from hedge fund managers who need to raise cash as the stock market weakens. An example was this week’s news that John Paulson, who owned the most shares of the biggest gold exchange-traded fund, the SPDR Gold Shares (GLD), sold a significant portion of this holding, and that may have spooked investors. Paulson’s intentions were unclear. While his gold positions were profitable, Reuters and other media outlets said Paulson's Advantage Plus fund lost nearly half of its value by the end of September after sharp falls in some of its equity holdings.
“Is the bull market still intact for gold? Yes, of course it is, but the short term is wrought with danger and we’ve no choice but to use rallies today and perhaps Monday to lighten up our positions a bit. Really, we’ve no choice. We have to live to fight another day,” Gartman said in his Friday newsletter.
Robin Bhar, senior metals analyst at Credit Agricole-CIB, said gold is behaving as a risk asset, rather than a safe haven. “Funding stresses have grown as borrowing costs for eurozone sovereigns have increased sharply; USD (the U.S. dollar) is very expensive to borrow and funding it is a lot tighter, forcing holders to sell gold to buy USD in order to meet funding requirements elsewhere,” he said in a research note.
Gold has its own short-term issues, too, Bhar added. The Comex has options expiry next week which could influence price behavior and he also pointed to the selling by Paulson and the greater need for a cash cushion as more reasons gold is struggling at current price levels.
Bhar added that the weakness in gold is weighing on sister metal, silver. The metal must hold at $30 an ounce to prevent further significant weakness from developing.
The industrial precious metals complex, that is silver and the platinum group metals, are getting hit by the problems in the eurozone, Barclays Capital said.
Source; http://www.kitco.com/reports/KitcoNews20111118DeC_outlook.html
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