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Debbie Carlson

METALS OUTLOOK: Getting Ready For Last Full Week Of Trading For 2012

By Debbie Carlson of Kitco News
Friday December 14, 2012 2:04 PM

(Kitco News) - Next week is the last full week of trading for 2012 and focuses for the week will include the continued wrangling over the U.S. “fiscal cliff” talks and position-squaring ahead of the end of the year.

Prices were up on the day and down on the week. The most-active February gold contract on the Comex division of the Nymex settled at $1,697, down 0.5% on the week. March silver settled at $32.299 an ounce, down 2.5% on the week. 

In the Kitco News Gold Survey, out of 33 participants, 26 responded this week. Of those 26 participants, 12 see prices up, while five see prices down and nine are neutral or see prices moving sideways. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

On Friday gold put in what’s known as an “inside trading day” on technical charts. That means gold held within the previous day’s trading range. Usually that’s a sign of indecision by a market on which direction it wants to go, according to technical analysts.

George Gero, vice president with RBC Capital Markets Global Futures and a precious metals strategist, said the dragging on of the fiscal cliff debates in Washington over automatic spending cuts and tax increases is taking a toll. “Traders are trying to assess what damage going over the fiscal cliff could do to gold, as it is recessionary and anti-inflationary,” he said.

A reminder about inflation came Friday with the November consumer price index data, which fell 0.3% because of lower energy prices. Excluding food and energy costs, November CPI rose 0.1%.

Gero noted that open interest in gold has fallen from November’s lofty levels, which he said is a sign that “funds are voting with their feet” on their view toward gold.

Gold prices broke this week, even though the Federal Open Monetary Committee said it would let “Operation Twist” expire and instead start buying Treasury notes outright monthly, $45 billion at a time. This is on top of the $40 billion monthly program announced in September. Gold initially rallied, but fell sharply the next day.

Like other market watchers, analysts at Deutsche Bank said even though gold should have rallied following the announcement this week by the Federal Reserve to add to reserves with another round of stimulus, “the market remains focused on the potential adverse liquidity impact of the U.S. fiscal cliff.”

They added that some market participants may consider “the Fed’s targeting of U.S. unemployment as a tool to gauge monetary accommodation … as hawkish given the apparent decline in U.S. unemployment over the past year.”

With next week being the last trading full week of the 2012, market watchers said participants could move to the sidelines if they already haven’t squared up positions. Volume usually dips ahead of the Christmas and New Year’s holiday, and this year the markets are dealing with the added uncertainty of the U.S. fiscal cliff negotiations, so if investors have profits they wish to book, that could happen next week.

Charles Nedoss, senior market strategist with Kingsview Financial, said going into next week he expects prices to hold in the current trading range, but to drift higher. “I’m cautiously optimistic. I think we’re going to move off the lows here,” he said.

He said if gold stops trading in tandem with the stock market and instead looks to the recent weakness of the U.S. dollar versus the euro, then that might benefit gold. Also, he said, if the fiscal cliff talks finally have some break-through, that will be price-supportive.

“I’d like to think we’ll have some agreement next week because these guys want to go home to their families,” Nedoss said.

That doesn’t mean he’s expecting everything to be solved, but just enough will be done to avoid falling over the precipice. “I imagine (any deal) will be put together with spit and glue,” he said.

Even though gold has settled lower on the week for the past three weeks, the yellow metal still has its adherents. Bulls cite the underlying fundamentals for gold, including the ultra-loose monetary policy by most global central banks as keeping the gold supported for the time being.

Despite the recent weakness in gold, those bullish on the yellow metal see opportunity in the breaks, such as this comment by Barclays: “Down-ticks in gold provide opportunity to buy at better levels. Our preference is to fade dips against the $1,670 area for a move toward $1,755 and then $1,800.”

Next week’s U.S. economic reports include the Empire State and Philly Fed indexes, which are manufacturing gauges, several pieces of housing data, and a third-quarter gross domestic product data revision. However, market watchers said it’s likely that fiscal cliff talks will overshadow everything else.

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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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