(Kitco News) - Selling pressure in gold abated on Friday as market participants viewed riots in Egypt with some apprehension and bought up gold on a safe-haven bid.

Friday’s rally was enough to erase most of the losses gold suffered this week and the firm close the markets staged was enough to encourage some, but not all, technical analysts to suggest prices could start to bottom.

April gold futures on the Comex division of the New York Mercantile Exchange settled at $1,341.70 an ounce unchanged on the week. March silver settled at $27.919 an ounce up 1.79% on the week.

The past few weeks have been a volatile ride for many commodity markets, including the precious metals, said Jimmy Tintle, analyst at Transworld Futures. “It’s really been a tough one,” he said.

Gold prices have seen sharp losses as traders roll positions out of the February contract into the April and further deferreds in the futures and the exchange-traded funds have seen significant outflows, magnifying the price drops. The price breaks have come on heavy volume and several analysts have said that this could be a sign of capitulation by people who bought gold near the top of the market in December.

“The positive argument will rest on the possible capitulation selloff seen earlier this week. Holdings in GLD (the biggest exchange-traded fund) fell more than 1.0 million ounces on Tuesday, and holdings in both the GLD and IAU are down 69.44 (metric tons) from the Dec 17th peak. On Monday, (futures) open interest dropped 14.1%, or 81,752 contracts, which is a large move relative to history. Such massive liquidations are typical of washouts, and usually signal that a bottom is near,” said Tom Pawlicki, MF Global analyst.

Friday’s news of riots in Egypt, which comes on the heels of riots and the eventual overthrow of Tunisia’s government earlier in the month, encouraged safe-haven buying. “Absolutely. It’s why we’re up today,” said Adrian Day, of Adrian Day Asset Management.

How much follow-through support the action in Egypt will give precious metals next week depends on how the situation develops over the weekend. Ralph Preston, senior financial analyst at Heritage West Futures, is a bit skeptical on the staying power, especially since the riots haven’t hit more politically sensitive countries like Iran and Saudi Arabia.
If the bounce in gold stalls he sees the market targeting $1,280, an area many market watchers have pointed to as major support. Both Preston and Tintle said if gold did fall to that area it would attract a lot of buying. Preston said even if prices dipped below, he doesn’t see gold extending its losses beyond there. “I would be a buyer. I don’t think it will fall much lower. If gold fell to $1,250 I would be blown away,” he said.

Preston and Tintle said the volatility in gold – and all the markets lately has been extreme. For example, Preston pointed out on Thursday, gold posted an outside day down on daily technical charts yet Friday it nearly erased all of those losses.

For next week, Tintle said gold prices could be range-bound and silver could range between $28 and $32, with the higher end possible if silver starts to bottom. “The five dollar correction we had on silver was a healthy correction,” he said.

Tintle said the volatility is likely to continue in commodities until at least Friday, when the U.S. unemployment report is released. The market might get a better sense of direction then.

Day said even though some of the recent U.S. economic news has come in somewhat positive, the situation regarding the U.S. housing market and unemployment are continuing to limit economic growth and that ultimately supports gold, despite the recent pullback.

“The fundamentals for gold haven’t changed. People have been buying gold because they don’t trust the fact the dollar won’t hold its value. Nothing has changed.  There’s some improvement in the U.S. economy, but unemployment is above 9% and companies aren’t hiring. The housing market is still flat on its face,” Day said.


By Debbie Carlson of Kitco News dcarlson@kitco.com

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