Gold Investors: Keep The Faith, Higher Prices Coming - Analysts
(Kitco News)- Frustration is starting to build among gold investors, butanalysts are encouraging them to keep the faith as the market still haspotential to break through $1,400 an ounce eventually.
While the breakout may not be on the horizon in theshort-term, many analysts think that it is only a matter of time and instead ofgiving up, many analysts see a drop back to the lower end of its currenttrading range.
This week has been particularly vexing for investors as theyellow metal was unable to hold gains above $1,350 an ounce even after lastweek’s rally, which saw the best weekly gains in nearly two years. This weekthe gold market has given almost half of those gains. June gold futures settledthe week at $1,327.3 an ounce, down almost 2% from the previous Friday.
After hitting a three-week high, the silver market alsoended up giving back all of its gains from the previous week. May silverfutures last traded at $16.268 an ounce, also down nearly 2% from last week.
Bill Baruch, president of Blue Line futures, said that hestill sees the potential for gold even after its latest rally has fizzled out.He added that investors need to stop getting lost in the small corrections andfocus on the overall trend.
“I don’t think the trade is gone just yet,” he said. “Themore ground gold can hold the better it will do when the U.S. dollar eventuallyturns. I expect the U.S. dollar will lose another 5% this year and that will bebullish for gold.”
Jasper Lawler, head of market research at London CapitalGroup, said that the gold market is just biding its time, waiting for the sparkthat will ignite a new rally. He added that although the gold market is unableto break out, prices continue to consolidate in a higher range.
“We aren’t seeing any major capitulation and that could be agood sign for the market,” he said. “When we see more sustained weakness inequities that will be gold’s time to shine.”
It is Not Just GoldThat is Frustrating Investors
While gold investors might think they are suffering alone,Colin Cieszynski, chief market strategist at SIA Wealth Management said that itlooks like all markets are in a holding pattern at the moment. He noted thatequity markets are churning as much as gold. Earlier this week equities saw anacross-the-board 2% rally only to see those gains disappear the followingsession.
Cieszynski added that in currency markets, the euro, pound,yen and U.S dollar, are all stuck in a range.
“There is no conviction one way or another to push prices inany markets,” he said. “Investors are just waiting around to get moreinformation. For the gold market, we see economic growth with no inflation andgeopolitical tensions are starting to ease, but volatility in markets continuesto provide important support.”
The market could get some direction next week as marketswait for the release of March’s employment report. Lawler said that marketswill be sensitive to any correction in the employment data after more than300,000 jobs were created in February.
How To Play This GoldMarket
Analysts continue to warn that gold investors need to bepatient and pick their buying opportunities carefully. Phillip Streible, seniormarket analyst at RJOFutures, said that he expects gold prices to fall back to its200-day moving average, which comes in at $1,304.60 an ounce.
“I think we are going to be stuck in a long-sideways patternand now we will test the bottom end of the range,” he said. “I would be buyinggold around $1,305 and would get out of the market if prices break below$1,300.”
Streible added that he is also looking at buying put optionsat $1,300 an ounce to provide some downside protection.
Baruch is also looking to buy gold on price drops and likeshedging his position with put options.
Streible added that even though gold is unable to break itscurrent channel, it is a better investment than equity markets.
“Equities are too volatile right now and are a bigger gamblethan gold and that could attract some investors,” he said.
The Market Needs ToSee More Physical Demand
While increased volatility and weaker equity markets willcontinue to support gold, Maxwell Gold, head of investment research at ETFSecurities, said in a recent interview with Kitco News, that the market needsto see a reassurance in physical demand.
He explained that an increase in physical bullion demandwill be the spark to drive prices through $1,400 an ounce.
“Physical demand helps to provide ceiling and a floor forthe market. Without that physical demand, investment demand doesn’t get you tothat new range,” he said.
The Final Say...
While markets will be waiting for Friday’s governmentemployment report, there will be enough data released through the week to keepinvestors engaged.
Major economic reports that will be releasedthis week include manufacturing and service-sector sentiment data from theInstitute for Supply Management. Markets will also get private sectoremployment data from private payrolls processor ADP.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.