(Kitco News) - There’s plenty of uncertainty regarding the outlook for gold prices next week, given the split view on what the Federal Reserve may say at its monetary-policy setting meeting which concludes Wednesday.
Prices rose Friday and on the week. The most-active February gold contract on the Comex division of the New York Mercantile Exchange settled at $1,664 an ounce, up 2.04% on the week. March silver settled at $30.509 an ounce, up 3.34% on the week.
In the Kitco News Gold Survey, out of 32 participants, 23 responded this week. Of those 23 participants, nine see prices up, while nine see prices down, and five are neutral on prices. Market participants include bullion dealers, investment banks, futures traders, money managers and technical chart analysts.
Many market watchers are looking ahead to the two-day Federal Open Market Committee meeting, where the Federal Reserve reviews monetary policy. While no changes to the federal funds rate are expected, analysts said have part of the rally in metals this week has come on hopes that the Fed could institute some sort of third round of quantitative easing next week. Some of those analysts said they believe it is too soon for the Fed to agree to another easing program.
What the Fed does next week could influence the direction of precious metals prices. If the Fed announces a “QE 3” program, prices could rally, but if they don’t, prices could fall, several market watchers said.
The FOMC announcement is slated for release at 12:30 p.m. EST Wednesday, with Fed Chairman Ben Bernanke hosting a press conference at 2:15 p.m.
Bob Tebbutt, vice president of risk management for PFGCanada, said perhaps too much immediate weight is given to the meeting. “I don’t see the meeting changing the world on a dime,” he said.
The euro saw some gains earlier this week, but currency analysts do not see it extending its rise. Several said the gains were on the back of short covering, which is buying-back of previously sold positions to close out a trade, rather than new bullish positions being established.
Barclays Capital analysts said without any support from a firmer euro, combined with the Lunar New Year holidays next week, gold could see its gains capped. The Lunar New Year is celebrated in many countries, most notably in China, and holiday times usually mean less physical demand.
The euro’s rally stalled around EUR1.30, even as Greek media reports that a private sector involvement agreement has been reached with the Greek government, with new bonds expected to be issued. While a successful pact on Greek debt could be considered price-supportive for the euro, Brown Brothers Harriman said while this deal may have been reached, traders will soon realize that other countries remain in trouble. There is also a Jan. 23 finance ministers meeting to continue to discuss the response to the fiscal crisis in Europe, with austerity rules likely still in place, BBH said.
Technical analysts point out that gold prices are holding near some important support and resistance levels, and depending on which way gold goes next week, it could set the stage for near-term price direction.
So far gold is holding above the 10-day and 200-day moving averages of around $1,640. Tebbutt said the $1,675 area is key resistance for the metal. If gold cannot take out resistance at $1,675, it could be setting itself up for another price break, perhaps targeting down to $1,500 eventually. He said given recent action in gold that the metal is more likely to take out $1,675 than to find that the level acts as a ceiling.
Silver has outperformed gold this week, rising with the other industrial metals. Tebbutt said if the situation in the European Union can show signs of being fixed, then silver should be able to build on its gains.
Source; http://www.kitco.com/reports/KitcoNews20120120DeC_metalsoutlook.html
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