Precious Metals Outlook: Despite Profit-Taking, Gold's Uptrend Remains Intact

03 September 2010, 1:35 p.m.
By Debbie Carlson and Allen Sykora
Of Kitco News

Chicago -- (Kitco News) Despite gold’s break following the surprising U.S. unemployment report Friday, the uptrend for gold is intact, but it will likely take an unforeseen event to push it to fresh highs in the near term.

December gold futures prices at 1:15 p.m. EDT were trading around $1,251 an ounce on the Comex division of the New York Mercantile Exchange, stumbling after U.S. non-farm payrolls showed only 54,000 jobs were lost in the month of August, far less than the about 110,000 that were expected to be shed. The news gave a bid to the platinum group metals, which had been holding firmer for the week on a strike situation in South Africa and good economic data.

“We saw some long profit-taking today. Those who came in late on the safety bid are coming out now,” said Frank Lesh, broker and futures analyst with FuturePath Trading, who said even though gold weakened Friday, the trend for the yellow metal is still higher.
He also pointed out a $10 loss for gold isn’t much considering the price level. “Sometimes gold can move $10 either way on just trading,” he said.

Analysts said one economic report does not make a trend and that the greater uneasy global economic situation will keep a floor under gold.

“Getting a number like we did today is a bit surprising, but it doesn’t change the picture. It’s better than expected, but we’re still looking at a U-shaped recovery (in the U.S.),” said Bill O’Neill, one of the principals with LOGIC Advisors.

U.S. futures markets are closed Monday because of the Labor Day holiday; trading resumes Tuesday. Next week’s economic calendar is light, so gold might look elsewhere for direction. Lesh said gold could see a bit of a drag if the trend of fund managers moving money out of Treasuries and into equities continues.

Charles Nedoss, senior market strategist with Olympus Futures, suggested gold could fare better next week no matter what equities do. Should stock indices make a technical breakout higher, this could prompt some buying in gold from those who anticipate that inflation will kick in whenever the economy recovers, he said.

Conversely, should stocks break lower, “fear buying” is likely to return to gold from investors avoiding risk in other assets. These participants may conclude “the stock market has petered out, so it’s time to put the gold trade back on.”

Lesh said he believes gold will see an upward bias, but isn’t sure there’s enough momentum to take it beyond the $1,260s unless some unforeseen circumstance happens. He puts support at $1,211 to $1,200 and said a move to $1,200 would be “healthy” for gold.
O’Neill said European and Asian demand picks up as gold experiences some breaks.

Nedoss also looks gold to test the higher end of its recent range next week.

 “I think you come up and challenge the $1,260 area,” he said. “A close above $1,270 next week would be very, very positive…I think the market has enough momentum that you could take those numbers out.”

The life-of-contract high for the most-active December futures on the Comex division of the New York Mercantile Exchange was $1,270.60, hit back in June.
Another feature next week is likely to be a pick-up in trading activity following the U.S. Labor Day weekend and summer-vacation period, analysts said.

PGMs Look Firm

O’Neill said the platinum group metals have seen strength and have a solid longer-term outlook, especially as Asian auto demand picks up. China’s auto sales posted gains earlier this week and O’Neill said India will be a “huge consumer of catalytic metal.”
The strike situation in South Africa also gave platinum legs this week. “Those can be very volatile and hard to predict,” O’Neill said.
He added, though, that South Africa is on target to raise platinum production this year versus 2009.

Allen Sykora contributed to this article.


By Debbie Carlson of Kitco News;

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration