Gold Market To Watch Comex Options Expiration, Fed Meeting

17 September 2010, 2:22 p.m.
By Debbie Carlson
Of Kitco News

Chicago -- (Kitco News) Strong gains in precious metals across the board could portend further strength next week, but market watchers are cautious for the inevitable pullback that comes when new price levels are breached.

Spot gold set an all-time high Friday of $1,284 an ounce, while silver poked through to $21 an ounce, its highest since March 2008. Platinum and palladium also advance, with platinum rising to its highest levels since May and palladium since April.

Although the trend is higher for precious metals in general, analysts have pointed out, particularly for gold, the metal often pulls back to correct before attempting to revisit the high. That did not happen with gold on Friday, which is unusual, said George Gero, vice president, RBC Capital Markets Global Futures.

The fact gold held is a positive technical sign, Gero said. It “may increase volatility next week prior to Sept. 26 option expirations for silver, copper and gold,” he added.

Going forward, he said it will be important to watch when November options expire, particularly between the $1,250 and $1,300 strikes. “There’s a pretty good turf battle going on there,” he said.

Alan Bush, senior financial analyst at Archer Financial Services, said the financial and gold markets rallied on the idea there will be some US quantitative easing program in place, with rumors of one up to $1 trillion. The Federal Reserve’s Federal Open Market Committee meeting is Tuesday and while no action on interest rates is expected, the accompanying statement will be parsed thoroughly. The current Federal Funds Target stands at zero to 25 basis points where it’s been since December 2008.

If nothing regarding an actual program is mentioned at the meeting, gold and financial markets could fall in disappointment, but Bush said it would only be a temporary setback. “The Fed has hinted they could be more accommodative if they believe it is necessary, so if they don’t have it in their statement, the feeling might be they will have it later,” Bush said.

Gold, he said, will continue to benefit from either inflationary concerns if the economies are improving, along with some continued ideas that countries will try to devalue their currencies, such as the Bank of Japan’s move earlier this week to intervene to keep the yen from rising. “In that way, gold acts like a currency itself,” he said.

Silver could eventually target the March 2008 high of $21.35, analysts said. “The closeness to this mark, a 30-year high, should attract further financial investors. It is therefore probably only a matter of time before this price level is reached. That said, it is unlikely to advance beyond this mark very quickly because of the technical resistance to be expected,” wrote analysts from Commerzbank in a Friday research note.

Paul Mladjenovic, author of Precious Metals Investing for Dummies, is bullish on silver. In a long-term forecast he sees silver taking out $50 because of the growing industrial use for silver, and not surprisingly sees the metal rising. In the next month or two, silver could target $25, but said considerable resistance for silver lies between the $23-$25 region. Prices could pull back to $19 on any correction, he added.

While in the short-term silver supplies are in surplus, Mladjenovic said longer-term those supplies could be whittled away by pickup in industrial use and as the physically backed exchange-traded funds start to put the metal in storage. Silver-backed ETFs have set records for holdings during the sizable rally these past few weeks.

He also believes the buying that silver has received during this rally is different than the buying seen during the rally in 2008, before all markets saw a steep sell off because of the credit crisis. He said the buying is including smaller hedge funds, as opposed to concentrated in a few hands, which is a positive sign for the gray metal.


By Debbie Carlson of Kitco News;