Debbie Carlson

METALS OUTLOOK: Uncertainty Still A Hallmark For Gold; Market May Hold Range Bound

11 January 2013, 2:16 p.m.
By Debbie Carlson
Of Kitco News
http://www.kitco.com/

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(Kitco News) - It seems the only certain thing one can say about the gold market is that uncertainty has been a hallmark of trading.

After climbing on the back of a stronger euro this week, gold prices fell sharply Friday erasing much of the week’s gains in one day, with the market testing the current range within one session. Given the choppy trading action, market participants said they wouldn’t be surprised if next week’s direction was much of the same – range bound.

Despite Friday’s losses, it squeaked out a win for the week. The most-active February gold contract on the Comex division of the Nymex settled at $1,660.60, up 0.71% on the week. March silver settled at $30.408 an ounce, up 1.54% on the week. 

In the Kitco News Gold Survey, out of 33 participants, 23 responded this week. Of those 23 participants, nine see prices up, while seven see prices down, and seven see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Gold prices on Friday wiped out nearly all of the sharp gains the metal put on during Thursday’s session. Some of the weakness was tied to several analysts downgrading expectations of forthcoming U.S. fourth-quarter gross domestic product after the release of monthly trade data, said Dan Pavilonis, senior commodities broker with RJO Futures.

The U.S. Department of Commerce said Friday that the U.S. trade deficit widened in to $48.7 billion November, up 15.8%, to the highest point since April.

Prior to the data, fourth quarter GDP was expected around 1.5%, but several banks, including Barclays, J.P. Morgan and Morgan Stanley slashed their estimates.

On Thursday gold rallied sharply following the news that the European Central Bank left interest rates unchanged, boosting the euro and thus gold. Some foreign exchange analysts said the euro’s strength is likely to continue as they expect the ECB will keep rates unchanged this year. The euro continued its climb on Friday at the expense of the dollar, but gold couldn’t keep up.

Pavilonis said for next week gold is likely to remain range bound, between $1,640 and $1,680, but he wasn’t keen on the way the market acted on Friday. “You know, given that the dollar is down, the euro is up, the Fed is printing (money), there is easy monetary policy everywhere – two years ago this would have been the perfect situation for the market to go higher, but it’s not. The market feels weak, not extremely weak, but that it just doesn’t have enough momentum to go higher,” he said.

There appears to be some support for gold at the lower levels, said Afshin Nabavi, head of trading at trading house MKS Finance, who also expects gold to trade in the current range and test the upper boundaries.

He said after the recent weakness in gold, physical demand came in, limiting the yellow metal’s decline. However, after Thursday’s strength, some of that physical buying interest dimmed.

“The physical demand has calmed down. I think the market got a little too excited on the upside,” Nabavi said.

Gold also found a temporary ceiling at $1,675 and the inability to pierce that level encouraged some selling. For next week Nabavi said gold could trade between $1,650 and $1,675, and if momentum pushes prices through the upper range, prices could rise to $1,695.

In light of the weakness gold exhibited this year, several banks and trading firms lowered their forecasts for gold. They said they still see prices higher than current levels, but curbed the upside of their outlooks. Part of that comes from the comments by the Federal Reserve after the release of the December meeting minutes where some monetary policy committee members suggested ending the quantitative easing program this year.

Bart Melek, vice president and director head of commodity strategy, rates and foreign exchange research and TD Securities, said the market reaction was “an unreasonable assumption that the balance of risk lies on Fed ending QE earlier, rather than later.”

However, Melek also said given recent price action “we acknowledge that gold may peak earlier and at a lower level this year in comparison to what we thought a few months ago.”

He added: “we continue to like gold into 2013, but with a bit less zest than a few months ago.”

The platinum group metals rose sharply this week, supported by expected supply disruptions in South Africa, just as demand might pick up as auto sales grow. Barclays said if platinum can break through resistance at $1,630, the next technical chart target is $1,735.  Some analysts, though, said, given the stout rally, it might be time for platinum to take a short-term breather.

“Despite being friendly to PGM's, a pullback would be healthy, particularly in platinum after a $120 rally from late December. Target is $1,580-1,600,” said Steve Scacalossi, vice president and director of global precious metals for TD Securities.

U.S. economic data for next week brings the consumer and producer price indexes, while industrial production and manufacturing data from the Empire State Index and the Philadelphia Fed are also slated for release.

Also next week is the fourth quarter Chinese gross domestic product data estimate. Expectations are that the GDP will show a rise from the third quarter level of 7.4% and after much stronger than expected export data released on Thursday, some analysts are increasing their expectations for fourth-quarter GDP.

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By Debbie Carlson of Kitco News dcarlson@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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