METALS OUTLOOK: Gold Seen Rising Next Week As Economic Worries Persist
02 Spetember 2011, 2:55 p.m.
By Debbie Carlson
Of Kitco News
kitco.com
(Kitco News) - Renewed worries in Europe over Greek debt and a lack of job growth in August in the U.S. are just two of the reasons market watchers expect gold to post price gains next week.
The most-active December gold contract on the Comex division of the New York Mercantile Exchange settled at $1,876.90, up 4.4% on the week. December silver settled at $43.069, up 5% on the week.
In the Kitco News Gold Survey, out of 34 participants, 25 responded this week. Of those 25 participants, 20 see prices up, while two see prices down, and three see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
More concerns for Europe surfaced Friday when talks were tabled between Greece’s government and the entities bailing it out – the European Union, the International Monetary Fund and the European Central Bank -- adding more fears of a potential default. Greece’s finance minister said the talks between Greece and the “troika” would resume in mid-September. News reports said the discussions were halted over arguments regarding Greece’s ability to meet deficit targets.
MarketWatch reported that a joint statement between the European Commission, the IMF and the European Central Bank said their mission team had made “good progress” in their fifth review of Greece’s compliance with the bailout. On a side note, yields for Italian and Spanish debt rose Friday, signaling more market concerns over those countries’ fiscal health.
The European news comes as the August report from the U.S. Labor Department showed that no jobs were created that month, leaving the unemployment rate at 9.1%. Gold prices spiked higher on the news.
Gold’s strong showing is prompting many market watchers to say that they expect prices to rise next week, although they caution that prices could be volatile, meaning be aware of swings.
“I don’t see gold losing much ground. Whether it’s European debt issues or the U.S. election and its impact on Congress being unable to do much, gold has a strong case going for it. If world economies were to suddenly change, with spending coming under control and job growth creation, I’d have to change my opinion. Since there’s little chance of either occurring, I remain very bullish,” said Ira Epstein, director of the Ira Epstein division of The Linn Group.
Epstein added that from a seasonal perspective, gold could trade sideways to lower for just a short bit of time and then break out to the upside. “An upside trigger might coincide with issues being voted on in the German Parliament concerning bailout of Greece and other weak EU members,” he said.
Several market watchers said if gold prices fall, there could be buying interest on dips, as there was in August when it broke from all-time nominal highs. “Yesterday (Thursday) was the first day of the gold buying season - Eid for Muslims, followed by Diwali and the wedding season in India - Christmas and then finally the Chinese New Year - it promises to be an exciting one for goldbugs and market watchers alike,” said Ross Norman, chief executive officer of Sharps Pixley.
While many market watchers are expecting gains next week, it is not unanimous. Jimmy Tintle, analyst at Transworld Futures, is more neutral on gold, expecting it to hold in the range of $1,850 to the recent all-time nominal high of around $1,917, at least for the first part of the week.
He cites the three-day Labor Day weekend as one reason to be neutral; second, he notes that open interest in the futures contract is not growing as price rise. Open interest is the number of position left standing at the end of the trading session and growing open interest in a higher price trend suggests new positions are being added. Considering that open interest is not growing as prices move up, the rise might not be sustainable.
“That’s not a good sign,” Tintle said.
Robin Bhar, senior metals analyst at Credit Agricole CIB, also warns that last month’s volatility in gold should remind investors that the metal is not a risk-free asset. “Moreover, the likelihood of further sizeable sell-offs has increased sharply at these elevated price levels and it is no longer a one-way bet. Nevertheless, the longer-term financial and economic imbalances in the U.S. and Europe and the negative real interest-rate environment should continue to be supportive for the gold price,” he said.
Next week is a shortened trading week in the U.S., with markets closed on Monday for the Labor Day holiday. The economic calendar is light, but traders said market participants are keenly anticipating President Barack Obama’s speech to a joint session of Congress on Thursday, when he is expected to talk about a jobs plan. Some believe the speech might not have the impact the president hopes it will.
“With Republican presidential debates and President Obama's economic-policy speech to Congress next week, worries that our government is incapable of dealing effectively with high unemployment, a stalling economy, and the federal deficit and debt crisis will continue to support retail gold demand and may encourage institutional speculators to place more bets on the long side of the market,” said Jeffrey Nichols, senior economic adviser to Rosland Capital and managing director of American Precious Metals Advisors.
Other precious-metals markets such as silver and the platinum group metals have been hiding in the shadow of gold, traders said. The PGMs remain subject to economic data and the health of the stock market, while silver has been supported by gold. Bhar said silver is consolidating above $41 an ounce.
Barclays Capital technical analysts see a narrow range for silver, saying they expect near-term gains capped near $43 and that they “prefer to buy dips near the $38.50/70 area.” |
