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Gold Prices Likely To Be Range Bound In Second Quarter – BNP Paribas

By Kitco News
Tuesday March 26, 2013 3:37 PM

(Kitco News) - Gold prices are likely to stay within a range in the second quarter, given that the market has not reacted as expected to certain news events and that technical chart indicators are neutral, said a metals strategist at a French bank.

The banking crisis in Cyprus and continued loose monetary policy by the Federal Reserve should have supported gold, but “instead the gold price only reacted mildly,” said Anne-Laure Tremblay, precious metals strategist at BNP Paribas.

“At face value, gold should have attracted safe-haven demand from greater risk aversion and the suggestion that Cyprus’ solution could be deployed in other eurozone member countries,” she said, but added that gold prices haven’t reflected this.

“Purchases of gold in the eurozone, be it in the form of bars and coins, may yet rebound as households convert cash into the precious metal. However, as in previous episodes of risk aversion prompted by eurozone concerns, the U.S. (dollar) has so far been the preferred target of safe-haven demand, explaining partly gold’s muted response to Cyprus’ misfortunes,” she said.

The news that China may take a more cautious monetary policy ahead might be construed as a bit bearish for prices, but she said it’s unlikely that the removal of excess liquidity and regulations of the shadow banking sector will impact real economic performance.

Finally, she said, quantitative easing is unlikely to go anywhere, anytime soon, and once the market realizes that, it should support gold prices, but maybe not until the second half of the year.

Still, she said, given the way gold has acted, investors need to brace for weakness, even if events in the eurozone heat up.

“Further episodes of high risk aversion in the eurozone may support the U.S. (dollar) to the detriment of gold. In this respect, we cannot exclude a test of the US$1,535/oz support level,” Tremblay said.

Technical analysis indicators are not giving gold any direction, either. “Indicators for gold prices tend to show a largely trendless market – see a neutral RSI reading and declining MACD momentum. The ADX reading is currently around 26, while the Bollinger bands remain narrow around the price, reflecting little volatility. Upside potential still remains capped by the moving average above the spot price,” she said.

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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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