(Kitco News) - Gold prices could be due for a retracement next week after their sharp rally since late December, with analysts citing technical-chart considerations and late-week signs that the U.S. dollar may strengthen against the euro again.
In the weekly Kitco News Gold Survey, out of 32 participants, 24 responded. Eleven see prices down, six see prices up and seven are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
February gold rose $14 per ounce over the last week to settle Friday at $1,630.80 on the Comex division of the New York Mercantile Exchange. March silver added 83.9 cents to $29.522 an ounce.
The February gold contract ran up 9.1% from a Dec. 29 low of $1,523.90 to a Thursday high of $1,662.90 before pulling back on Friday, leaving analysts thinking there could be more of a correction ahead.
“It looks to me like gold should probably fall off a little bit next week,” said Darin Newsom, senior analyst with Televent DTN. “I am not anticipating a huge sell-off. But it certainly looks like we may have run out of a little bit of bullish momentum. We tested some technical price resistance up here right around $1,665 this week…and have backed off.”
He sees potential for the market to drift back down to technical-chart support that he put around $1,610 before stabilizing.
“If we’re looking for a fundamental reason outside of technicals…we’re seeing some headlines today about renewed concern about downgrades in the eurozone,” Newsom said. “This is weakening the euro and supporting the dollar.”
Mike Zarembski, senior commodities analyst with optionsXpress, also sees gold falling back next week on a combination of technicals and unfolding European events, suggesting February gold could test $1,615 to $1,610.
“I think gold may be headed for a little bit of a correction,” he said, citing the inability of the market to maintain upward momentum after crossing above $1,650 an ounce the last two days and then falling back to a low near $1,625.Plus, there is the situation with Europe and concerns about debt downgrades,” he said. Rather than benefiting as a “safe haven,” gold lately has often moved with other commodities inversely to the dollar, which has benefited from the nervousness about Europe, he said.
“Gold has been more susceptible to a strengthening dollar than it has in the past several months,” Zarembski said.
Meanwhile, George Gero, vice president with RBC Capital Markets Global Futures, looks for improvement in gold next week after Friday’s sell-off.
Traders were reluctant to buy Friday ahead of a long weekend due to factors such as worries over European downgrades, he said. But as the situation becomes more clarified, “you’ll probably see some buyers return to the market,” he said. “I think this is a short-term sell-off and is mostly technical.”
Also, he said, some traders were simply hesitant to buy since there will be a three-day U.S. weekend, which of course will be history when trading resumes next week. “You don’t want to take a chance on unexpected, unnerving headlines over a long weekend,” he said. “So buyers are holding off.”
Bulls also cited some fundamental factors in gold’s favor.
“Heightened tensions in the Persian Gulf with saber-rattling by Iran remain another possible influence on the gold price in the weeks ahead,” said Jeffrey Nichols, senior economic advisor to Rosland Capital and managing director of American Precious Metals Advisors. “Watch the price of oil as any move much over recent highs (near $102 per barrel) could be enough to trigger another gold-price rally.”
Nichols also cited strong Chinese demand after news this week that imports by mainland China from Hong Kong hit record highs. Potential for further monetary easing in several nations is supportive for gold, as are expectations that central-bank buying will continue. Nichols also said that while rebalancing by index, commodity and hedge funds was a negative factor for gold early in the New Year, this has about run its course.
Meanwhile, Zarembski pointed out that the market will have a number of major U.S. reports to digest next week, which could impact commodity markets. The list includes the Producer Price Index and industrial production on Wednesday, jobless claims, the Consumer Price Index and Philadelphia Fed Index Thursday and existing-home sales on Friday.
Platinum group metals also posted an up week, with the April Nymex contract rising $80.60 from last Friday to close at $1,488.80 an ounce. March palladium gained $21.05 for the week to $635.05.
Some of the support was said to have come on a covering of short positions after South African energy utility Eskom warned of possible power-supply shortages during upcoming maintenance. Power has not been cut to mines yet, but nevertheless traders were cognizant that there at least is potential for some supply disruptions.
Zarembski said he feels platinum and palladium previously had become “oversold,” particularly compared to the price of gold, thus may be starting to “catch up.” Further, if economic data in the U.S. and Asia show improvement, the platinum group metals may gain further on gold, he added. The main industrial use for platinum group metals is auto catalysts.
“Any time you have potential for improvement in industrial capacity and production, those metals will be supported,” he said.
Gero also cites potential for the platinum group metals to keep stabilizing, particularly amid hopes for improvement in the auto and housing sectors.
Source; http://www.kitco.com/reports/KitcoNews20120113AS_metalsoutlook.html
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