(Kitco News) - A strong rally in gold, particularly toward the end of the week, could have enough momentum to keep going next week and could set the stage for an eventual target of the $1,400-an-ounce area.
Gold prices ended the week up. December gold futures rose Friday, settling at $1,371 an ounce on the Comex division of the New York Mercantile Exchange, up 4.4% on the week. September silver rose Friday, settling at $23.322 an ounce, up 14.3% on the week.
In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 21 see prices up, while two see prices down and two see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Gold prices rallied into the end of the week, with a strong push on Thursday to crack technical resistance at $1,350, the first time it did that since mid-June. The market continued its advance on Friday.
Market watchers cited several reasons for the rise, including safe-haven buying on the news over escalating violence between supporters of the ousted Egyptian president and the Egyptian military, which has left hundreds dead.
Frank Lesh, broker and futures analyst with FuturePath Trading, said when gold pushed through $1,350, it uncovered pre-placed buy orders, known as buy stops, likely placed by bearish market participants looking to exit positions. This is also known as short covering.
He also suggested another reason: “market participants have decided that no one knows when the Fed will begin tapering or by how much, so shoot first and ask questions later. The charts were looking positive and showing the potential for this move as well. Physical demand in Asia is strong and liquidation of ETFs (exchange-traded funds) has subsided.”
Some also suggested news that a dumping of a position by big hedge fund manager John Paulson, who had the biggest position in the main gold ETF, the SPDR Gold Trust, may have encouraged buying in gold. News reports said Paulson cut more than half of his position in the ETF and this might represent some sort of “capitulation” by speculative holders, spurring some gold market participants to buy.
A couple of market watchers wondered if the big move in gold on Thursday wasn’t tied to some other market activity. Both Daniel Pavilonis, senior commodities broker, RJO Futures, and Edward Meir, commodities consultant at INTL FCStone, said the market action suggested buying may have been going on.
“The type of whippy action we saw in gold and silver also suggests that either a massive fund may have staked out fresh long positions or that significant buying hit the market, presumably from the Mideast. Certainly, there are ample reasons for such a scenario to play out, least among them being that the situation in Egypt is rapidly spiraling out of control,” Meir said.
Given the firm close, gold may try and target higher levels next week. Lesh said the next levels of technical chart resistance for the December contract lie at $1,382, $1,398 and $1,423. He pegged support at $1,349, $1,335 and $1,317.
Erik Swarts, founder of the market research site Market Anthropology, also forecast gold – and silver – rising. He, along with several other analysts, said silver helped drag gold higher in the last few weeks.
He forecast spot silver to rise to $24 by mid-September and $27 by Jan. 1, while he forecast spot gold to rise to $1,475 by mid-September and $1,600 by Jan. 1.
He stands by his bullish call for gold, citing comparative studies of how gold performed from 2004 as a reason. “That’s when the Fed changed monetary policy,” Swarts said.
Further, the U.S. economy is “turning up, China and the EU are stabilizing. Inflation expectations are troughing,” he said, adding that he expects inflation to normalize from its ultra-low levels. “I’m not looking for hyper inflation,” he said.
There’s been a lot of talk that the weakness in equities this week supported gold, and that equities are set up for sharp losses after strong gains this year. Swarts isn’t one of them. He expects equities to consolidate during this time.
“People are freaking out about it, but that’s part of why it (equities) keeps going up. People are waiting for a crash to happen and it doesn’t, and it won’t do it when everyone expects it to. It will happen, but when it does, it won’t be the end of the world, either,” he said.
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By Debbie Carlson firstname.lastname@example.org