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Pending FOMC Meeting Leaves Survey Participants Split On Gold Market Direction

Friday December 13, 2013 12:00 PM

(Kitco News) - With the Federal Open Market Committee meeting slated for Tuesday and Wednesday, market participants are split on how gold prices will trade next week, although there is a nominal higher number who see weaker prices.

In the Kitco News Gold Survey, out of 34 participants, 23 responded this week. Of these, eight see prices up, while nine see prices down and six see prices sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Last week, survey participants were evenly divided over gold’s direction. As of noon EST Friday, February gold on the Comex division of the New York Mercantile Exchange was up about $6 an ounce for the week.

Those who see weaker prices said gold’s inability to build on this week’s earlier gains is a bearish sign. Ralph Preston, principal at Heritage West Financial, is one participant who said he sees lower prices next week.

“Fundamentally market psychology is dominated by a race to the bottom in interest rates between the Federal Reserve and the European Central Bank – at the moment it appears as if the ECB is winning that race. That gives the U.S. dollar a yield advantage that continues to threaten gold’s bleak technical outlook, which is poised for a drop down to this year’s low of (around) $1,170,” he said.

Participants who see higher prices said they expect gold to bounce back to retest this week’s high as prices ping-pong in a range.

Richard Baker, editor, Eureka Miner, said gold prices could rise slightly.

“I believe this morning’s weaker-than-expected PPI (producer price index) will not be enough to convince the Federal Reserve to begin a taper of their bond buying program at next week’s FOMC meeting. This will probably give some boost to gold prices even though the PPI may be followed by a weak CPI (consumer price index) report. A pullback in monetary stimulus is taken to be bearish for gold price; rising inflation expectations, bullish – neither is likely,” he said.

Several participants said they’re on the sidelines in gold until after the FOMC meeting and others said they expect the back-and-forth trading gold experienced lately to continue.

Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, said while he’s neutral next week, he believes the gold market is “grossly overreacting” to the tapering concerns and the new U.S. budget deal.

“An as-yet undetermined $23 billion cut in spending over 10 years in a $17 trillion deficit is meaningless. And spending goes up over $60 billion next year against the previously determined budget, and down $23 billion sometime later.  It’s a farce.  Yet the market thinks this provides cover for the Fed to cut back on bond buying.  Even with a budget, there is still the possibility of a fight over raising the debt ceiling in February. So a gross overreaction to eventual tightening…. But for now, it’s ‘me against the market,’” Day said.

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Kitco Gold Survey

By Debbie Carlson of Kitco News; dcarlson@kitco.com

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