The short-term sentiment in gold changed this week, particularly as
the market took out an important technical-chart level, but whether the
metal extends its losses might depend on what Asian buyers do next
week when they return from their Lunar New Year festival.
Prices were lower on the day and the week. Most-active April
gold on the Comex division of the Nymex settled at $1,609.50, down 3.4%
on the week. March silver settled at $29.869, down 5% on the week.
In the U.S., markets are closed Monday for the Presidents Day holiday. Trade resumes Tuesday.
In the Kitco News
Gold Survey,
out of 33 participants, 25 responded this week. Of those 25
participants, nine see prices up, while 12 see prices down, and four
see prices moving sideways or are neutral. Market participants include
bullion dealers, investment banks, futures traders, money managers and
technical-chart analysts.
Market participants said attitudes in gold for now have
changed, pointing to an increase in open interest in Comex futures
market as prices fall. Open interest is a count of the number of
outstanding positions at the end of a trading session, and if that
tally rises when prices fall, it’s considered a sign of new bearish
positions established.
Some said news this week showing that major investors such as
George Soros and Louis Moore Bacon sold some of their gold
exchange-traded fund holdings, as listed in U.S. Securities and
Exchange Commission filings, added to the change in sentiment.
Gold’s drop under $1,627.90 pushed the market into a loss for
the year, and that move undercovered pre-placed sell orders which
exaggerated the drop.
Jimmy Tintle, owner, GreenKey Alternative Asset Services, was
impressed by the force that pushed gold through technical-chart
support. Tintle, who said he’s been bearish on gold prices lately, said
now that the yellow metal has broken through the $1,625 level that’s
been talked about as key support for a few weeks, the action might
entice some retail buying, which could slow gold’s descent.
“On a technical level, we finally closed the gap on the chart
that was left in August. This typically is a good technical buying
point. Gold is also oversold on the nearer-term charts, (but) still has
a way to go on the monthly,” he said.
While he thinks the sell-off in gold could ease a bit, his
outlook remains negative, especially since gold closed under $1,625 on
Friday. “I would be looking at gold to reach the lower end of the
congestion area from May 2012 to July 2012 (which runs from) $1,580 to
$1,525. With all the currency wars going on, I would not be a buyer at
this point, unless we get a solid close above $1,649. For the longer
term, I believe gold needs to post a new 18-month low (falling to the)
$1,400-$1,450 area or lower before seeing a run for a higher high.”
Market watchers said the short-term direction in gold will
likely be influenced by what Asian traders do when they return from
their holiday. With prices much lower than a week ago, these traders
have a decision to make. Do they see the lower price as a bargain and
load up the shopping carts, which would bring demand back to the market
and raise prices, or do they become influenced by the negative
sentiment and stay on the sidelines? If they don’t step in, prices
could tumble further, several analysts said.
Not everyone is uniformly bearish. Some market watchers who
suggested prices might rise said short-term sentiment has tilted to
negative, which might be a contrary indicator and a reason to step in
and buy. They also cited long-term support for gold from the
ultra-loose monetary policy practiced by most central banks. Still
others pointed out that short-term viewpoints and long-term viewpoints
can be, and often are, two different things.
Looking to next week, market participants will watch the
comments out of the Group of 20 meeting, which officially will be
released Saturday. With talk of “currency wars” swirling, comments are
likely to focus on influencing foreign exchange rates. Brown Brothers
Harriman said most of the comments are likely to be “boiler plate
stuff” such as saying that countries should allow foreign exchange
prices to be determined by the market and the foreign exchange market
needs to be able to clear global trade and capital flows without
excessive volatility.
Focus has been on Japan lately, as the yen has fallen as Japan
seeks another stimulus program to prop up its economy. “In most
discussions of currency wars, the focus is on the high-income
countries, yet the reluctance of large current account surplus
countries in lower-income countries to allow their currencies to
participate in the adjustment process is an important part of the
underlying tension,” BBH said.
So far the gold market has ignored the rhetoric of “currency wars,” most analysts said, but that could change.
Market participants will also look to the release of the
Federal Reserve’s meeting minutes on Wednesday, which can affect market
movements.
Traders could start to watch for news about the “sequester” in
the U.S., which is a self-imposed deadline to deal with $85 billion in
automatic spending cuts that would occur if Congress did not act. After
the Presidents Day holiday, talks will heat up again. This week,
Senate Democrats suggested delaying by 10 months the automatic
indiscriminate spending cuts with a combination of cuts and taxes.
“Although volatility may start to increase as we approach the
March 1st U.S. budget deadline, we don’t think we will see the kind of
big moves we saw when the fiscal cliff stand-off first captivated the
markets in December,” said Edward Meir, commodities consultant at INTL
FCStone.
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