Gold Prices Could Correct Next Week, But Trend Remains Up

(Kitco News) - Gold prices could retreat a bit next week following five weeks of gains, but overall market watchers said any correction by the yellow metal next week should be light and short-lived, as the overall trend for gold remains higher.

Prices fell on Friday and were mixed on the week. The most-active April gold contract on the Comex division of the New York Mercantile Exchange settled at $1,740.30 an ounce, up 0.28% on the week. March silver settled at $33.749 an ounce, down 0.12% on the week.

In the Kitco News Gold Survey, out of 32 participants, 24 responded this week. Of those 24 participants, 14 see prices up, while seven see prices down, and three are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical chart analysts.

Gold prices slipped following a surprisingly strong report on U.S. jobs for January. The headline figure of 243,000 jobs created was far above even the highest trade estimates and about double the average forecast of about 120,000. The rise in new jobs pushed the unemployment rate to 8.3% from 8.5%. Marc Chandler, head of global currency strategy at Brown Brothers Harriman, said this data has two-fold implications.

“First, it eases fears that this year was repeating the past two years where a fairly robust fourth quarter was followed by a softer first quarter. This coupled with other recent reports for January show the year has begun off on a firm note. Second, it has policy implications. 

The prospects for QE3 (a third quantitative easing), for which recent comments by (Federal Reserve Chairman Ben) Bernanke suggests the bar may be lower than previously perceived, is not as imminent as some observers have argued,” Chandler said.

Jeff Rosen, economist at Briefing Research, said the jobs report shows the U.S. “economy is moving ahead and is on stable footing.”

This was the largest increase in private payrolls since April 2011, Rosen said. “More importantly, aggregate wages increased 0.4% in January. That level is indicative of strong consumption growth. Payroll growth was widespread,” he added.

Ken Morrison, editor and founder of online newsletter Morrison on the Markets, agreed with those sentiments. “Today's U.S. employment report and upward revisions to past months will re-establish some doubt about the need for monetary stimulus in the U.S., thus the expectations for a mild pullback in gold,” he said.

Morrison said a downside target could be $1,700 to $1,680.

Even analysts who look for gold to end next week higher concede that gold could pull back temporarily before moving up. “I would look for prices to pull back to roughly $1,715, maybe a little deeper. Only a close under $1,675 hints at a turn in prices to the downside. After the pullback and a couple days of basing, I expect gold to blast off next week over $1,775,” said Ralph Preston, senior market analyst at Heritage West Financial.

After a heavy week of economic data this week, next week’s offerings are lighter, which should have less impact on precious-metals trade. Consumer sentiment is slated for release on Friday, which will give some insight to how people are feeling about the U.S. economy.

Next week may return investor’s views toward Europe. There still is no deal regarding the private sector involvement in Greek debt negotiations and analysts have said the longer that drags out, the more potentially bearish it is for markets. Nervousness over Europe’s economic situation has been a weight on gold recently.

PGMS BRIGHTEN

Investors seem to be taking a new look at the platinum group metals, which rallied in January with other commodities. Even with the gains, platinum was one of the top commodity performers after dismal end to 2011. Support could continue for the PGMs following the jobs data, said analysts.

“Based on the employment data and the stronger than expected auto sales report (this) bodes well for retail sales.  The jump in manufacturing employment suggests a strong industrial and manufacturing output.  Rise in construction spending should see another strong construction spending report,” Chandler said.

That could trickle into support for the PGMs as platinum and palladium rose in January on the back of a pickup in auto sales. The main industrial use for PGMs is in catalytic converters in autos.

Labor difficulties in South Africa are also underpinning PGMs. Michael Lewis, analyst at Deutsche Bank, pointed to the work stoppages at Impala’s Rustenburg mine, which have been deemed illegal by a court. This particular stoppage is one of a series that has plagued Impala in the past several quarters, Lewis said, adding that the Rustenburg operation produced about 941,000 ounces in the last fiscal year.

“Certainly the challenges facing the PGM mining sector in South Africa seem to be growing ever greater and we expect that the supply growth for platinum, palladium and rhodium face potentially significant disappointment,” he said.

The problems with PGM production in South Africa come on the heels of news from Norilsk, which said PGM output should be flat year-over-year for 2012, at 2.780 million ounces of palladium and 690,000 ounces of platinum.

“We continue to expect PGMs to outperform gold over the next several quarters as a consequence of improving demand conditions and constraints on supply,” he said.

Source; http://www.kitco.com/reports/KitcoNews20120203DeC_metalsoutlook.html