Gold Bullion (GOLD)

[CaptWhizbang]

Higher Prices Expected For Gold Next Week After Recent Gains

27 April 2012, 2:15 p.m.
By Debbie Carlson
Of Kitco News
http://www.kitco.com/


(Kitco News) - Gold prices may build on gains established late this week, as market participants look at technical charts and renewed concerns about the eurozone’s economic health for direction in next week’s trade.


Prices were higher on Friday and mixed on the week. The most-active June gold contract on the Comex division of the New York Mercantile Exchange rose Friday, settling at $1,664.80 an ounce, up 1.34% on the week. May silver rose Friday, settling at $31.347 an ounce, down 0.96% on the week.


In theKitco gold surveyout of 33 participants, 26 responded this week. Of those 26 participants, 21 see prices up, while three see prices down, and two are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.


Gold prices rose on Friday, supported by a drop in the U.S. dollar after lower-than-expected first-quarter gross domestic product. GDP growth came in at 2.2%, under expectations for 2.7% growth. Friday’s gold rally built on gains posted after the Federal Reserve’s monetary-policy committee Wednesday left interest rates unchanged from their ultra-low levels. There was some initial disappointment that the Federal Open Market Committee did not embark on any new stimulus programs, but market participants were eventually comforted by the fact that monetary policy remains friendly to gold prices, traders said.


Bob Haberkorn, senior market strategist at RJO Futures, said given the disappointing GDP figures and the rise in unemployment claims on Thursday, some in the market are beginning to think that the Fed may have to come back with some sort of stimulus program. That supported metals.


Technical-chart analysts are generally bullish on gold for next week, citing how the market performed at this week’s lows.


Adam Hewison, president and chief strategist with INO and MarketClub.com, said he sees higher prices next week. “The gold market has bottomed out around the $1,620 level. For this coming week, we are bullish on gold and expect it to move higher. The first barrier for this market comes in around the $1,700 level,” he said.


Ken Morrison, founder and editor of the newsletter Morrison on the Markets, also said for the short-term gold has potential to rise. He said open interest in Comex futures, which is the number of outstanding positions in the market, increased after Wednesday’s rally.

“Open Interest has begun rise along with rising prices, a sign that new buyers are willing to step up,” he said.


He said resistance is seen at $1,680, with $1,700 a potential overhead target which may be reached in the next two to four weeks.


A few market participants are pointing to this week’s news of continued central-bank buying of gold as a strong underlying fundamental for the metal as central banks usually buy to add to foreign-exchange reserves.


“Central banks are now creating an upside bias to the market and are reducing the ‘free-float’ available to meet future demand, even at much higher prices. As a consequence, we can expect less downside volatility – and a more sustainable bull market with much higher prices in the years to come,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic adviser to Rosland Capital.


Looking ahead to next week, some market participants said the direction of the U.S. dollar will influence gold, as concerns about Europe’s economic outlook rise again.


The downgrade of Spain’s credit rating by Standard & Poor’s Thursday night is a stark reminder of the continued problems the eurozone faces. Gold initially rose on the news, but then came off as the euro retreated. Many market participants who see prices rising next week said the problems in Europe underscore gold’s safe-haven aspects.


Safe-haven assets are likely to perform well if there are more jitters around, but not everyone thinks gold is acting as a safe haven, but more as a risk asset. In that case, gold may stumble. “Since gold continues to display a high degree of correlation with commodities and equities, the yellow metal is also likely to suffer as a result,” Commerzbank said.


Mark Chandler, head of currency strategy at Brown Brothers Harriman, noted the weakness in the dollar versus other currencies on Friday was a bit counter-intuitive. “Spain's two-notch downgrade, pressure on the European bonds, the French and Greek elections a week away, an RBA (Royal Bank of Australia) rate cut and still they rally. As we noted at the start of the week, technical indicators are more constructive than our assessment of the underlying fundamentals,” he said.


If the dollar can regain its footing, gold may come under pressure.


Next week brings the April unemployment data from the U.S. Department of Labor. After March’s lower-than-expected figures, market participants will be keen to see if that trend continues. There’s debate already on which way it may go. Among those who see weak growth are analysts at BNP Paribas, who expect the April payroll numbers to come in around 125,000. Ahead of the report’s release, they said to watch the “ISM non-manufacturing number whose employment component tends to be a good indicator” for the jobs data.


Nomura analysts are more upbeat on the report, forecasting nonfarm payrolls to rise by 195,000 in April. They cite regional business surveys that point to a “healthy round” of manufacturing jobs and a rebound in retail jobs. Their caveat is that “payroll forecasts for the month of April carry an unusual degree of uncertainty.”

A survey of analysts by MarketWatch calls for a rise of 190,000 jobs in April, versus March’s figure of 120,000.

By Debbie Carlson of Kitco News [e-mail]

http://www.kitco.com/reports/KitcoNews20120427DeC_metals_outlook.html