Technicals, Resurgence Of QE Hopes Expected To Lift Gold Prices Next Week

Technicals, Resurgence Of QE Hopes Expected To Lift Gold Prices Next Week

Analysts say some anticipation of more Federal Reserve easing may be creeping back into the markets again and this, combined with gold’s ability to bounce from chart support at the recent lows, may enable the metal to rise over the next week.

In the Kitco News Gold Survey, 21 participants responded this week. Of those, 12 see prices up, five see prices down and four say sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Gold rose over the past week. The most-active June contract settled after the Comex pit session Friday at $1,660.20 an ounce, a gain of $30.10, or 1.8%, since the close on April 5 ahead of the three-day Easter weekend. May silver settled at $31.39, a decline of 34 cents over the last trading week.
Spencer Patton, founder and chief investment officer for the hedge fund Steel Vine Investments, sees potential for gold to rise in the near term based on both the technical charts and fundamentals. As for the charts, gold has held several times in recent months above $1,600, Patton said.

“We’ve seen consistent buying interest once we’ve seen gold get to the $1,620 to $1,625 level,” he said. “That is a great sign for the market. This last time we went down, we fell a whole bunch over a period of two days once it was thought quantitative easing No. 3 was taken off of the table, and yet once again selling dried up around $1,620 and you’ve seen gold rally 50 to 60 bucks off of that low.”

Fundamentally, buying has resumed from India, Patton said. Previously, jewelry shops had been on strike for three weeks to protest tax increases on the metal, before jewelers reopened when India’s finance minister indicated he would consider a rollback of the excise duty.

“And, I am still believing there is going to be some type of quantitative-(easing) moves by either the European Central Bank or the Fed,” Patton said. “It just appears they are not done. The (economic) data has just not been strong enough to support the theory that we’re not going to see any more stimulus. It may not come in the form of QE3, but it may come in other forms…The Fed can be incredibly creative in how they go about additional monetary stimulus.”

Gold has fallen back from the late-February highs, with the largest tumbles tending to come on days when some kind of Federal Reserve commentary was construed to mean reduced prospects for QE3. Nevertheless, the market tends to go back and forth as traders try to factor in what they think ultimately will happen, and expectations began to shift slightly again after a softer-than-forecast report of 120,000 non-farm job gains in March was reported on Good Friday. Sterling Smith, market analyst and commodity trading adviser with Country Hedging, is also among those who suspect traders may start to factor in a more dovish Fed again, thereby underpinning gold.

“The weakness in the stock market, along with the continued weak economic data, is probably going to keep the idea of the next round of quantitative easing more to the forefront,” Smith said, also citing dovish comments from Federal Reserve Vice Chair Janet Yellen this week. “Gold is very, very sensitive to even the perception of this sort of behavior from central banks.”

Mike Daly, gold and silver specialist with PFGBEST, also cited geopolitical concerns as a supportive influence. Iran and the West in the past have refused to “blink” in an ongoing debate over Iran’s nuclear program, he says, although a new round of talks is scheduled for Saturday with delegates of the five permanent members of the U.N. Security Council. Also, North Korea attempted to launch a long-range missile, an act that U.N. officials called destabilizing despite its failure.

“Any time you have a warring environment, it’s bullish for gold,” Daly says.

Technically, Smith said, gold appears to be making an inverted head-and-shoulders pattern on a daily chart, which would be bullish.

“However, it is struggling currently with some resistance at about $1,680 or so,” he said. “If we could trade and close above that for a couple of next days early next week, I think that would propel some new buying and maybe take us back above the $1,700 level.”

Daniel Pavilonis, senior commodities broker with RJO Futures, looks for gold to trade sideways or correct lower next week. While he describes himself as upbeat for the longer term, he also does not see an immediate fresh catalyst.

He said he has been “extremely bullish for a long time” and anticipates continued debasing of currencies ultimately will offer further support. However, “I don’t see anything near term that is going to make this thing pop.”

Darin Newsom, DTN senior analyst, also looks for gold to pull back next week. He fears investors may be losing some of their enthusiasm for commodities in general at the moment, as reflected by the inability of commodities with bullish supply/demand fundamentals to keep rising.

“Gold, in particular, has a very strong inverse relationship with the U.S. dollar,” he said. “The dollar seems to be gaining some momentum on increased concerns about Europe (with its debt problems) and slower-than-expected growth in China. That bumped up the dollar this morning and it looks like it’s going to carry over into next week. If it does, I would anticipate more selling could come into gold.”

Newsom also cited Comex June gold’s inability to break through initial resistance at the 38.2% retracement of the late February-early April sell-off, which lies at $1,682.60 an ounce. This week’s rally stalled at $1,681.30 on Thursday and $1,679.20 Friday.

By Allen Sykora

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