(Kitco News) - Gold prices are expected to rise next week, but whether the metal gains value is largely dependent on the outcome of the Eurogroup meeting on Monday to determine Greece’s bailout.
Prices were lower on Friday and mixed on the week. The most-active April gold contract on the Comex division of the New York Mercantile Exchange settled at $1,725.90 an ounce, up 0.04% on the week. March silver settled at $33.216 an ounce, down 1.16% on the week.
In the Kitco News Gold Survey, out of 32 participants, 23 responded this week. Of those 23 participants, 16 see prices up, while three see prices down, and four are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Market watchers said the most important factor for precious metals markets – and financial markets in general – will be the announcement from the Eurogroup meeting on Monday. Markets across the board rallied on Friday initially, optimistic that some sort of deal can be reached with Greece so the country can get its second bailout. However, profit-taking going into the long weekend capped gains in equities and weighed on gold into the closing bell.
Many who expect a positive resolution to the meeting expect it will translate to higher prices in nearly all markets.
U.S. markets are closed on Monday for the Presidents’ Day holiday. Normal trade resumes Tuesday.
George Gero, vice president, global futures, RBC Capital Markets and precious metals strategist, isn’t sure how gold will react next week, especially with the holiday coming up. “Can I flip a coin? The problem is that today is Friday and it’s a long weekend so a lot of traders are saying ‘get me out of here for the weekend.’ Then there is the issue of ever-changing headlines over Greece and essentially traders are taking things off the table…. Everything is in a wait-and-see mode until Tuesday when markets reopen,” he said.
Several market participants said that gold is acting as a risk asset rather than a safe haven as the drawn-out discussions with Greece continue, and this atypical trade should continue in the short-term. That leaves it vulnerable to price swings.
“The eventual settlement of the eurozone sovereign debt crisis should eventually break this link. Until then, gold trading is likely to be volatile and prone to chase eurozone and especially Greek headlines,” said Jim Steel, analyst at HSBC.
Because the gold market is tethered to other risk assets, Edward Meir, commodities consultant at FC Stone, urged buyers to exhibit caution for now.
“All in all, it is a very difficult call to make at this stage, although we suspect that a loan package (as opposed to a default) will ultimately go through. Should investors start to see the firm outlines of a deal forming going into the middle of next week, various markets could start to stabilize and perhaps push higher, as one final relief rally may set in. However, we would rather keep our powder dry and stay sidelined for the moment, as markets will be very choppy between now and then,” Meir said.
In addition to hopes that European leaders and Greece can come to terms, support for risk assets comes from generally improving U.S. economic data, said Barclays Capital analysts.
Particularly important are the gains in U.S. labor data, said Michael Gavin, analyst at Barclays. “This is natural; given the likelihood of economic weakness in Europe and deceleration in China, the stakes in the U.S. recovery are (even) higher than usual,” Gavin said.
He added that the continued uptick in labor data might be a little worrisome if investors’ concerns have been tempered regarding the U.S. recovery, or that investors become complacent. Even so, the trend in jobs growth has been strong and might not be reversed unless in an event of a shock.
However, the slowly growing U.S. economy is “far from giving an 'all clear' to markets. Beyond the next couple of months, there is plenty to worry about,” he said, noting the huge challenges still facing the eurozone, tight world crude oil markets and the possibility of a hard landing for the Chinese economy.
“It will be surprising if one of these, or some other risk, does not throw a scare into global asset markets at some point this year. But for now, we think the odds are better that economic momentum in the U.S. and cautious expectations about imminent developments in Greece will keep global asset markets reasonably well supported,” he said.
Headline risk aside, gold-market watchers said the underlying fundamentals for the metal remain supportive given the ultra-loose monetary policy by the Federal Reserve and other Western central banks and continued strong demand for physical gold from Asian nations.
Ken Morrison, founder and editor of online newsletter Morrison on the Markets, said when gold did not break under $1,700 level this week, it was a positive sign for those bullish on gold.
“Futures got close enough to my $1,700 downside target on two recent occasions to call it a successful re-test of support. The chart pattern indicates the path of least resistance is now to the upside,” Morrison said.
Another positive is the rising open interest for Comex gold, Morrison added. Open interest is the number of positions remaining at the end of a trading session. High open interest is a sign of liquidity and growing open interest during a price trend can sometimes give a clue if the trend is sustainable in the short-term.
“Open interest has also risen somewhat in the past week, up about 13,000 contracts. Combined with slightly higher prices on the week, it indicates an upside bias with new buyers coming. When considering these factors with Thursday's reversal and weakening in the dollar, I expect upside for the week ahead with a target to about $1,770,” he added.
PLATINUM CONTINUES TO GATHER STRENGTH
Platinum prices have also rallied stoutly this year, supported by hopes of a better U.S. economy, but lately supported by a strike at Impala Platinum’s Rustenburg mine, the world’s largest platinum mine. That strike started on Jan. 12 and Impala has said it has lost about 60,000 ounces of output.
Several analysts said the strike will have an impact on platinum output this year as the company will struggle to meet year-end production targets and that should support prices in the near-term.
By Debbie Carlson of Kitco News firstname.lastname@example.org
Cecilia Tulikowski-Denison contributed to this story.