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Debbie Carlson

METALS OUTLOOK: Uncertain Outlook For Gold Next Week

By Debbie Carlson of Kitco News
Friday March 1, 2013 2:10 PM

(Kitco News) - A volatile gold market is leaving market participants wary on gold’s direction next week after sharp rallies and breaks were seen in this week’s action.

Gold had a wide trading range this week, roughly between $1,554 and $1,620, and prices settled at the lower end of this range.

April gold futures ended weaker on Friday, settling at $1,572.30 an ounce on the Comex division of the New York Mercantile Exchange. This was down 50 cents, or 0.03%, on the week. Most-active May silver ended higher on the day, settling at $28.49. This was down 3 cents, or 0.105% on the week.

The uncertainty of the market’s price direction was seen in the weekly Kitco News Gold Survey. Out of 33 participants, 29 responded this week. Of those 29 participants, 13 see prices up, while eight see prices down, and eight see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Gold prices ended February with a loss, the fifth month in a row to do so and the longest losing streak since 1993, according to Deutsche Bank.

There is a distinct difference in the sentiment toward gold, with those participants who use the futures market or exchange-traded funds selling, but physical traders buying, particularly in Asia.

Commodity Futures Trading Commission data show speculators hold some of the smallest net-long positions in gold in several years and exchange-traded fund data showed some investors are selling. INTL FCStone said the largest gold ETF, the SPDR Gold Trust, saw its biggest monthly outflow since inception, with smaller gold funds also seeing outflows.

Barclays said given this bearish sentiment, “there is scope for a short covering rally,” however, “macro data surprises to the downside are likely to lead to a larger-than-expected move higher.”

Frank Lesh, futures broker at FuturePath Trading, said the heaviest selling may be over, but that doesn’t mean investors will be back to buy. He’s expecting gold to hold in the current range.  “Psychology has been damaged and we cannot expect to see this capital come rushing back in soon, however. Traders are selling the rallies rather than buying the dips as short positions are favored. If the $1,550s do hold, then I expect gold to trade in a range between the $1,550s and low $1,600s...”

Countering the bearish view on gold in futures and ETF markets is the physical buying interest, several market watchers said. Chinese and Indian buyers have snapped up gold at the discounted prices, but market watchers added that this needs to continue if the yellow metal is to at least sustain some kind of floor. Some questioned whether the Indian buying will continue as strongly since some of it may have been in anticipation of possibly higher taxes on gold by the Indian government, which so far have not materialized.

Concerns about the U.S. economy slowing might come into focus next week, despite some recent stronger-than-expected economic data, because of the sequester cuts. Although the $85 billion in sequester cuts won’t be felt immediately, the longer-term impact is expected to dampen the U.S. economy this year, economists said.

Some gold market analysts said if concerns about the economy slowing increase, it might cause some investors to return to gold. Part of what’s turned some investors sour on the metal is the outsized performance of the equity market.

“Washington’s inability to come together with a pro-growth fiscal-policy mix puts much pressure on Bernanke’s Fed to maintain - and possibly even step up - its ongoing program of quantitative easing and extremely low interest rates,“ said Jeffrey Nichols, senior economic adviser to Rosland Capital and managing director at American Precious Metals Advisors.

Data releases next week in the U.S. include the always-important U.S. unemployment report, set for release Friday. Also next week, the Federal Reserve will release it Beige Book, which was prepared ahead of a Federal Open Market Committee meeting later this month. Market watchers said the report will likely present an overview of the U.S. economy in the wake of the higher payroll taxes that kicked in during January.  

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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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