Source: Marketwatch
San Francisco— Gold futures fell more than 1% Friday, but ended the week $6 higher as investors mulled over the precious metal's success in reaching the $600-an-ounce level, but failure to surpass it during the regular day sessions.
"Gold may find some more sellers into early next week with $575-580 providing a good cushion," said Peter Spina, an analyst at GoldSeek.com.
"The objective remains $600-plus gold in the short term," he said. "Volatility will keep traders second-guessing themselves."
Gold for June delivery closed down $7 at $592.70 an ounce, after an overnight high of $603.10 — its highest intraday level since January 1981. On an intraday basis, it climbed as high as $599.30 Friday. It finished last Friday's session at $586.70.
Prices closed just shy of $600 Thursday after touching that level during regular trading. That was the highest closing price for gold futures since December 1980.
It's no surprise to see some pullback and profit-taking after gold prices hit $600 on Thursday, said Amaury Conti, a trader at Austin, Calvert & Flavin. Strength in the U.S. dollar also weighed on gold, he said, offering a "good opportunity to take some profit and look to re-enter [the market] lower."
Taking a look at the bigger picture, "all the catalysts … [the] weaker dollar, rates, declining mine supply, alternative asset class, growing demand from China and India, have aligned," he said, noting that the biggest catalyst was the introduction of the gold exchange-traded fund.
The "increased popularity" of commodity-based ETFs has "given the institutional and retail investor an avenue to play the commodity cycle versus owning riskier gold-mining stocks or mutual funds with high fees or minimums," he said.
Long-term win
Overall, analysts expect higher prices for gold going forward and for the long haul.
"As major central banks continue to irresponsibly flood the world with easy credit and excess liquidity, gold is increasingly reclaiming its former glory as the preferred coin of the realm," said Peter Schiff, president of Darien Connecticut-based EuroPacific Capital.
He claims that investors are "fooled by the government's campaign to disguise inflation" through promotion of such distorted measures as the 'core CPI. While prices of most goods are rising, "those higher prices somehow never show up in government inflation indexes," he said.
But "action in the gold market reveals the truth. For my money, I believe what I see, not what the government tells me, which is why my money is in gold," he said.
From these levels, "the price of gold could go even higher, given that it still has not eclipsed the 1980 inflation adjusted peak of nearly $2,200 an ounce," said Brian Hicks, co-manager of the Global Resources Fund.
"We believe the recent strength in gold is due in part to growing participation from more mainstream institutional investors such as pension funds, and not simply the result of short-term hedge fund buying," he said.
"Investors are sensing that we may be near an end to the Fed's current rate tightening cycle, which has supported the U.S. dollar despite rapidly growing trade and budget deficits," he said.
All of that may "push the price of gold over $600 an ounce in the near term and as much as $700 an ounce by year-end," Hicks said.
Waiting for the right moment
Indeed, "the trend is still positive" for gold, said Austin, Calvert & Flavin's Conti, but "I would wait over the next two months for a seasonal pullback ($550-$575?) to get in."
"The longer-term trend will last until 2008, and I think the Olympics in China will be the top for all metals," he said.
Gold has gained more than 40% in the past 12 months on inflation concern, expectations of dollar weakness once the Federal Reserve stops raising interest rates, and worry about some of the world's trouble spots such as Iraq and, more recently, Iran and its confrontation with the United Nations over its nuclear research.
"We remain very positive on the precious-metals space based on the supply-demand fundamentals for gold and the spillover into silver," said J.P. Morgan analyst John Bridges.
One event that might derail the rally would be a sharp decline in the major U.S. indexes, said Bridges. That could hit precious metals as investors book profits to offset loss-making positions elsewhere. But even then, other factors, like first-quarter earnings for the big gold-mining companies, would underpin prices.
For the near-term, Conti expects gold prices to pull back, with the potential launch of the silver ETF offering "a short-term top" for silver.
Silver stays above $12
Silver has rallied sharply in recent months on expectations of a strong surge in physical demand for the metal once an exchange-traded fund, currently in registration by Barcl
Share This Post
Choose Your Platform: Facebook Twitter Linkedin