(Kitco News) - European news will continue to dominate headlines and provide direction for the precious metals markets, as two meetings will be held by policy makers regarding the on-going sovereign debt crisis there.
That means all markets- gold included – will be held hostage by the news that comes out and that could mean some market players may be on the sidelines. If there is some optimism that talks are progressing to an outcome, prices for all markets could rise, analysts said.
“There is little doubt that this weekend’s first of two summit meetings is likely to be the main events over the few days. As such, we expect markets to remain jittery and for price action to remain choppy, given the difficulties policy makers have in solving the eurozone debt crisis,” said analysts at Brown Brothers Harriman.
On the week, December gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,636.10 an ounce, down 2.79% on the week. December silver settled at $31.193 an ounce, down 3.05% on the week.
In the Kitco News Gold Survey, out of 34 participants, 24 responded this week. Of those 24 participants, 11 see prices up, while 10 see prices down and three see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
Originally there was to be one summit, on Sunday, but a second summit was added, for Wednesday. Initially markets fell sharply on Thursday when it appeared that the Sunday meeting would not be enough to tackle the issue. But Commerzbank said once the “shock at the virtual deferral of the summit has now raised new hopes that a solution will be found after all.”
Brown Brothers Harriman said market expectations are likely to be influenced by three potential outcomes, barring the expansion of the European Financial Stability Facility. One, a program to recapitialize European banks could be announced. Second is an increase in the size of the haircut on Greek government debt – BBH said write-downs could be in the range of 40-60%. Third, policy makers could speed up the operation of the European Stability Mechanism, which would replace the EFSF and deal with orderly defaults.
“While we think these measures would likely be a step in the right direction, we suspect that the solutions are unlikely to provide closure for the markets and thus we expect the markets to be disappointed in the outcome,” BBH said, which could put pressure on the euro as a result.
Because so much is riding on the outcome of the meetings, many market watchers are suggesting that investors be cautious ahead of the euro summit.
Indeed, some have suggested the lack of uncertainty regarding Europe (and to a degree the political wrangling in the U.S.) is leading to many people being on the sidelines until some clarity is reached.
Alan Bush, senior financial futures analyst at Archer Financial Services, said anytime political decisions can affect how markets operate it’s best to stay on the sidelines.
Charles Nedoss, senior market strategist with Olympus Futures, expressed optimism that something constructive would come out of the confabs and that will support gold prices. “I think they’ll pull something together. We’ve had rhetoric, but we actually need to see that they’re doing something,” he said.
There has been a lot of chatter about debt-laden European nations to use their gold reserves to reduce budget deficits, and Michael Lewis, head of commodities research at Deutsche Bank, said in the past gold was useful for European governments as the European Monetary Union was formed. But Lewis said he doesn’t see gold being used in the current crisis.
“Gold holdings are still in the possession of national governments but are ring-fenced from the authorities by the eurosystem. Moreover in terms of valuation euro area gold holdings represent little more than 6% of public debt outstanding,” he said.
Robin Bhar, senior metals analyst at Credit Agricole – CIB, said gold has been under pressure amid doubts about its true safe-haven appeal and selling to free up cash. What’s limited severe downside pressure currently is physical buying on dips. If good news comes out of the eurozone summits, then a rally in the euro should push gold prices up. This should also “outweigh any selling due to a diminished ‘fear’ factor and its role as an anti-risk asset,” he said.
The industrial metals are trapped by the news flow, too, with silver, copper and the platinum group metals rallying or falling based on the macroeconomic or currency developments, Bhar said, which makes it difficult to hold positions, especially in the base metals.
TECHNICAL CHARTS LOOK BEARISH
Bhar said looking at technical charts for gold, the metal “remains in trouble” on a daily and weekly basis. He pointed out that on the weekly charts, the cash market is “persistently” closing below the weekly base line, which comes in at $1,691.30.
Barclays Capital technical analysts echoed the bearish outlook for gold, too. “We look for gold to break below support near $1,580 to confirm a test of our $1,550/1530 target area,” they said.
Olympus Futures’ Nedoss said a lot of moving averages are beginning to converge in gold. The 10-day moving average for December gold futures is around $1,660, with the 100-day at $1,661. “We need to close above those levels early next week,” he said.
By Debbie Carlson of Kitco News dcarlson@kitco.com
Source; www.kitco.com/reports/KitcoNews20111021DeC_outlook.html
No comments:
Post a Comment