Gold prices could continue to find buying interest next week as investors are likely to stay nervous regarding the European sovereign debt situation and start to turn their attention to the U.S. “super committee” charged with federal spending cuts.
On the week, December gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,788.10 an ounce, up 1.88% on the week. December silver settled at $34.682 an ounce, up 1.75% on the week.
In the Kitco News Gold Survey, out of 34 participants, 22 responded this week. Of those 22 participants, 18 see prices up, while two see prices down and two see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
Market participants are keeping an eye on Europe after the Greek prime minister stepped down and Italy’s prime minister is planning to leave. Analysts at Brown Brothers Harriman said the political uncertainty appears to be easing gradually, with a technocratic government – that is a government run by people based upon how knowledgeable and skillful they are in their chosen field – slated to take over in Greece. Italy could see the same type of government in place next week following votes on austerity packages.
The easing of the political worries helped yields on Italian 10-year bonds pull back to under 7%, which many analysts said is key as that level is where Greece and Portugal need to reach out for help.
Tensions over Europe’s situation may have eased for the moment, but it doesn’t mean all is well. Analysts at Commerzbank said “it is still unclear whether a new government in Italy will be able to successfully consolidate its budget without external help. Gold should therefore continue to profit from the persisting high uncertainty.”
Rich DeFalco, president, West Cooper Asset Management, concurred, adding that gold prices should continue to move higher because of the turmoil in Europe is so entrenched.
If the European Central Bank has to expand its balance sheet to shore up ailing European economies, gold is likely to hit new records into 2012, said TD Securities. “We would undoubtedly have markets worrying that inflation will be used to address Europe’s fiscal problems. It is also likely that governments may want to create above trend inflation in order to reduce the real value of the debt issued by Greece, Italy, Spain, etc. We would also expect that real yields move lower and short-term rates remain at near-record lows for years,” they said.
Gold prices rallied sharply on Friday, supported by the dollar weakening and the stock market rallying. Charles Nedoss, senior market strategist at Olympus Futures, said that with no fresh headlines out of Europe there was less need for investors to seek safety in the dollar.
Gold fell earlier in the week, but DeFalco and some other market watchers said that may have been related more to the problems regarding customer funds at now-bankrupt firm MF Global than to the near-term desirability of gold. Customer accounts have been moved to other clearing firms, but not all positions or monies have accompanied the move and that might have caused accounts that do not have sufficient margin to sell other assets to top off the accounts. Market watchers said that seems to be the case in other markets besides precious metals, too, as prices for some commodities seem to be lower than fundamentally justified in the short-term.
Market watchers said by the end of next week, many more investors will keep an eye on the back and forth between the selected members of the Joint Select Committee on Deficit Reduction, known as the super committee. The group is charged with the task of cutting $1.2 trillion from the budget over the next decade. If they cannot come to an agreement, automatic cuts of that size kick in. The uncertainty that might surround what this group is doing could support gold, especially if it comes down to the last-minute, which could happen given past history of other Congressional decisions.
Economic news for next week includes retail sales and inflation data. Official inflation data remains subdued, with consumer price index estimates for October suggesting to be flat versus a rise of 0.3% in September. (Kitco News)
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