Kitco. METALS OUTLOOK: Gold Likely To Test Lower End Of Range

By Debbie Carlson of Kitco News

Gold prices are likely to continue in their range-bound trade next week after the metal was unable to take out the $1,700 an ounce level, with market participants expecting gold will likely to test the low end of the recent price range.

Prices were weaker on the day and the week. February gold on the Comex division of the Nymex settled at $1,656.60, down 2% on the week. March silver settled at $31.206, down 1.9% on the week.

In the Kitco News Gold Survey, out of 33 participants, 25 responded this week. Of those 25 participants, eight see prices up, while 12 see prices down, and five see prices moving sideways. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Gold prices ended Friday weaker, with the market finding selling pressure when the February futures slipped through the 200-day moving average around $1,668. The weakness in gold started when the market was unable to take out the $1,700 level, an area that has vexed gold bulls in the recent past.

Market participants said strength in the stock market – with the Standard & Poor’s 500 breaking through the 1,500 level for the first time in five years – has drawn short-term investor from gold. Further, decent economic news from the eurozone and the U.S. and deferral of the U.S. debt-ceiling debate also spurred selling in gold.

Ken Morrison, founder and editor of online newsletter Morrison on the Markets, said the repeated failure of gold to take out $1,700 has discouraged bullish traders. He said more weakness might be in store for the yellow metal.

“I think the big surprise for gold is it will trade lower than most believe is possible, $1,550. That will require weeks, not days, but the trend remains lower. With the consensus expecting improved economic growth, the reason for owning gold (or buying more) is brought into question,” he said.

Before gold cracks the $1,600 level, technical analysts said there is support for the yellow metal at $1,650 and $1,620.

Not everyone is so bearish on gold, but at the same time, many see little reason to get excited right now.

Afshin Nabavi, head of trading at MKS (Switzerland) SA, said he sees gold staying in the current range. “It’s been sideways for the past two to three weeks. Every time it looks good, we see the offers (to sell) come in and then we see buying when the market comes to the lows. It’s just not too exciting,” he said.
Until gold can break out of this range, it’s unlikely to attract new blood, he said.

Buying interest at the lower levels has appeared in the past, which has some market watchers questioning how far gold could fall in the short term. They point out that Chinese New Year is around the corner, which could spur some physical buying out of Asia, plus, they said central banks continue to add to reserves. Earlier this week a Russian central bank chief was quoted in media reports that the bank will continue to buy gold as it seeks to diversify its foreign reserves away from paper assets.

Silver’s retreat whipsawed a lot of bulls, market participants noted. Silver showed strong price gains and its rally was somewhat overshadowed by the rally in the platinum group metals.

“Silver is the same story as gold. It really was following gold. It couldn’t take out $32.50 and when that didn’t happen, you had a lot of disappointed longs liquidate,” Nabavi said.

Charles Nedoss, senior market strategist with Kingsview Financial, said after silver rallied for eight straight days, it wiped out half of those gains in two days. He said silver might be the market to watch for those looking for direction in gold.

“Silver led the rally up and it’s leading the break down. We rallied so far, so fast, the 200-day moving average is at $30.76,” he said

Nedoss said he wouldn’t be surprised to see silver try and test the $31 area, with gold testing $1,650. Both of those levels he expects to hold. If silver can hold its support, gold will likely follow, he said.

Next week also brings February gold options expiration at the Comex division of the New York Mercantile Exchange, which will be watched by market participants. However, the strike prices with the heaviest open interest remain fairly far from where current futures prices are so it’s unlikely to affect the market too much, analysts said.

In economic news, next week brings the non-farm unemployment report for February. In a survey of analysts, MarketWatch said the unemployment rate is expected to stay unchanged at 7.8%.

Given the stronger-than-expect jobless claims figures and other recent economic data, gold traders will watch to see if the trend continues. Positive data could weigh on gold, while lower-than-expected figures could support prices.

Next week also brings the Federal Open Market Committee meeting, but no change in monetary policy is expected.

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