(Kitco News) - Repercussions from the Federal Reserve’s quantitative easing program on Wednesday are likely to echo into next week and drive precious prices higher, with $1,400 on the radar screen for gold.

Precious metals trade was extremely volatile in the aftermath of the Fed’s decision to by $600 billion in U.S. Treasury notes and bonds on Wednesday, with prices up and down several times in the immediate action. Precious metals prices then rallied sharply on Thursday, with most other financial markets, with gold making new all-time highs and silver taking out its multi-decade high.

On Friday, December gold futures on the Comex division of the New York Mercantile Exchange settled at $1,397.70 an ounce, up 3% on the week. December silver settled at $26.748 an ounce, up 8.9% on the week. The platinum metals group were also strong.
Gold prices set an intraday all-time high of $1,398.70 on Friday and silver set a fresh 30-year high of $26.915. Precious metals prices turned weaker initially after the release of a better-than-expected U.S. unemployment report, but the break only spurred buying interest.

Buying of dips is likely to be a factor in metals trade for at least the short-term, said Spencer Patton, president, Steel Vine Investments. “There is the potential for a pullback, in order to fill the gap on the (December Comex gold) chart from $1,359.20 to $1,368. If we see a pullback it could move to there, but I doubt we’ll see it. There will be lots of buyers,” Patton said.

It’s easy to see gold hitting $1,400 early next week and silver possibly rising to $27 an ounce, Patton said.

“Metals are the place to be,” he said.

Gold and silver could see a bit of resistance at those round psychological numbers, but stout resistance is not expected.

Precious metals have downside risk in the short-term if the dollar sees a sharp rally on any particular day and silver will be vulnerable to any retreat in gold, he said.
While the dollar is the unloved wallflower in the corner of the high school dance, many currency analysts warn those who are buying gold in other currencies besides the dollar to beware that the euro is still the pimply faced teenager in the other corner of the gym.
Debt risks in Europe remain, as witnessed by the spread between Irish yield spreads against German bunds rose sharply this week. Currency analysts point out an election in Greece – with the first round next week and the second round the week after – bear watching, especially since Prime Minister Papandreou has made this election a "referendum" on the government's economic reform. 

“While we think that the Greek elections are unlikely to lead to a risk-off event, we think that if (the current government) performs poorly, it could be read by the market as potentially signaling a wavering in Greece's tough fiscal austerity measures,” Barclays said.

While gold hogs the headlines in the continuing rally off the Fed move, George Gero, vice president with RBC Capital Markets Global Futures, precious metals strategist, said other metals are getting the star treatment, too.  “More attention is being given silver, platinum, palladium and copper,” he said.

Interest in owning the metals come from a “back to basics” mentality: “low dollar, low rates and more asset allocation,” Gero said.

Ira Epstein, director of the Ira Epstein division ofThe Linn Group said, the rally in gold this week ends the mid-October correction and that gold could see $1,450 “in the very near future,” he said.

Epstein said gold has upside momentum going into year end, although some consolidation is likely to take place between now and then. He does not expect the recent low of $1,315.60 set on Oct. 22 to be retested and given the combination of the Fed’s actions and the seasonally strong tendency for gold to rise, “I can’t help but walk away with the idea that higher prices, possibly much higher prices are on the horizon,” Epstein said.

He added, though, not to get swept up in the emotion of the current market.
“Probably the best advice I can give you is to not buy blindly. Know where you’re wrong or where you can’t stand the pressure of a downside correction. Regardless of what the Fed does, there will inevitably be points along the way where market forces come together to offer you with a price correction,” Epstein said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

<<Back to more Kitco exclusive news