METALS OUTLOOK: Sentiment In Gold Changes; Watch Asian Activity

By Debbie Carlson of Kitco News

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.

Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It’s free, too. My account is @dcarlsonkitco

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