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Shaky Equity Markets To Support Gold Next Week Say Analysts


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Shaky Equity Markets To Support Gold Next Week Say Analysts

Friday February 19, 2016 15:35
(Kitco News) - Despite gold’s impressive four-week rally coming to end this week, analysts still see volatile equity markets supporting the metal’s prices.

Friday, April Comex gold futures settled the session at $1,230.80 an ounce, down only 0.44% on the week . Silver also saw an end to its four-week rally as March Comex silver futures ended Friday’s session at $15.373 an ounce, down more than 25 on the week.

Investor and analysts appear to be shrugging off gold’s slightly negative performance on the week as positive sentiment remains fairly high, according to the latest Kitco News Wall Street vs. Main Street Gold Survey results.

This week, 1,036 people voted in Kitco’s online survey, of which 739 participants, or 71%, said they are bullish on gold next week. This is the first time the survey has seen less than 80% bullish voters in four weeks. At the same time, 197 people, or 19%, said they are bearish on gold next week, and 100 people, or 10%, are neutral.

A majority of market analysts also expect gold prices to move higher in the near term. Out of 34 market experts contacted, 17 responded, of which 10, or 59%, said they expect to see higher prices next week. At the same time, four professionals, or 24%, said they see lower prices and three analysts, or 18%, are neutral on the market. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Most analysts noted that gold’s price action this week was a healthy consolidation after last week’s parabolic rise to a 12-month high. The fact that gold was able to hold above initial support at $1,200 an ounce and close near technical resistance at $1,232 an ounce shows that the market has some resiliency.

“The market is forming a nice consolidation pattern. The price action has almost been textbook,’ said Phillip Streible, senior market analyst at RJOFutures.

Streible said that he is optimistic that gold prices will eventually break their resistance level at $1,232 an ounce and re-test the recent highs.

“Nothing has really changed, oil prices are still weak, the European economy is still messed up and there are still fears the U.S. economy is heading into a recession,” he said. “Everything is so shaky that the only place to park your money is in gold.”

Mike Dragosits, senior commodity strategist at TD Securities, said that he is optimistic on gold in the near term as equity markets look set to selloff again. He noted that the last rally in stocks was on significantly lower volume, suggesting the gains are fragile.

“If we do get a sharp selloff, gold is going to get a lot of that flow back,” he said. “The pattern lately has been that when investors get worried about equities, they tend to buy gold.”

Dragosits added that disappointing economic data next week, especially the U.S. Conference Board’s Consumer Confidence survey, could be enough to spook markets, benefiting gold.

George Gero, precious-metals strategist with RBC Capital Markets Global Futures, said that gold’s safe-haven appeal is overshadowing potentially any negatives in the marketplace. Its convertibility in the global marketplace makes it an easy diversifier for asset allocators, he added.

However, some analysts aren’t convinced that this gold rally has any momentum left. Jessica Fung, commodity analyst at BMO Capital Markets, said that expectations will have to grow substantially that the Fed will introduce negative interest rates for gold to move higher, which is an unlikely scenario.

She said that the data, although not fantastic, does not support the growing fears that the U.S. economy is headed for a recession. She added that equity markets should stabilize as investors realize that recession fears have been exaggerated.

“I think the weakness in equities is already priced into the gold market,” she said. “At this point, we would need to see a major leg down in equities for gold to rally higher.”

Along with the consumer confidence data, markets will also receive preliminary manufacturing data for February, January housing sales numbers and the second print of U.S. gross domestic product for the fourth quarter.

By Neils Christensen of Kitco News;nchristensen@kitco.com
Follow me on Twitter @neils_C

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 precious metal products, 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.