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Gold prices Seen Steady To Higher Predictions Next Week may 16 2011

Gold prices Seen Steady To Higher Predictions Next Week may 16 2011 ; Gold prices are expected to generally trade steady to higher next week after recent weakness, but in general market participants aren’t expecting strong gains. Silver will likely remain extremely volatile which keeps traders in a wait-and-see mode.

June gold futures on the Comex division of the New York Mercantile Exchange settled at $1,493.60 an ounce, up 0.134% on the week. July silver settled at $35.013 an ounce, down 0.776% on the week.

In a survey of market participants by Kitco News, 50% expected higher prices, while 30.8% expected lower prices and 19.2% expected prices to be unchanged.

George Gero, vice president with RBC Capital Markets Global Futures, vice president-precious metals strategist, said he expected gold to trade steady to higher next week as gold. “It’s still another currency, it’s still a haven and it will behave like another currency and another haven,” he said.

Gero said gold will be supported as the International Monetary Fund is now concerned that the euro zone debt crisis will expand. Further, the U.S. economy looks to be on the road to recovery, which could be supportive to gold. “Gold holders are essentially trying to preserve purchasing power as other commodities keep rising in price,” he said.

Robin Bhar, senior metals analyst at Credit Agricole Corporate and Investment Bank, said as geopolitical factors wane, the focus is shifting toward the U.S. dollar, the Eurozone debt crisis and inflation concerns.

“Any signs that inflation is easing are likely to weigh on gold as are the ongoing outflows from the physically backed gold ETFs (exchange-traded funds), which, together with the increased price volatility, could be warning of a price reversal or at least a degree of two-way risk in the market now and much less of a one-way bet,” Bhar said in a research note.

He wrote that if gold falls back to the $1,470 area, it could be an opportunity to buy the yellow metal “as supportive fundamentals and bullish charts suggest that upside potential remains far from becoming exhausted.”

If gold futures can take out the $1,527 high, it would suggest the correction is over, said Dave Toth, director of technical research at RJ O’Brien and rjomrt.com

If gold cannot take out $1,527 and if it slips under this week’s low of $1,462, there’s a good chance that gold to fall back to the $1,425-30 area, which he said could give a bullish trader “a substantial risk-reward return.”

Markets often correct in two ways he said. Markets that take their time to correct often produce shallower breaks, versus those that have steeper price falls but do so quickly.

“There are a zillion ways markets can correct,” he said.

Next week is a light week for economic reports, but it brings the minutes from April’s Federal Open Market Committee meeting. While not necessarily a market-mover, the minutes can give market participants an insight to what FOMC members are thinking.

Credit Agricole analysts said it’s unlikely, though, that the minutes will give traders any better sense of what the Fed plans to do about the winding down of the second round of quantitative easing.

In Europe there’s a two-day meeting of the Eurogroup/EcoFin meeting. A formal approval of the Portuguese bailout package is expected, with some further details likely to be announced regarding fiscal targets and asset sales, Credit Agricole said.

Silver prices are likely to stay volatile as the market works through the recent price swings. Barclays Capital said silver will struggle to recapture the recent highs near $50 and will likely have trouble at $40.

“The volatile nature of its investment demand shows that prices of silver above $40/oz ultimately lack fundamental support, since the physical market will most likely be in a large surplus this year. In our view, silver prices will remain dicey going forward until we find support from the metal’s industrial demand,” the firm said in a research note.

They are more constructive on gold in the long-run because “high inflation expectations in both the U.S. and Asia should come to push the market out of the short-term ditch that it has fallen into for now,” they said.

Toth said silver might be finding some support at the recent lows, following a savage sell-off from the sharply higher levels made in the past few weeks. Toth said the velocity of price drops are starting to slow which could be a sign silver is nearing a bottom for now. He said the $31-32 area could provide support. If it can, this could offer a short-term trader a favorable risk-reward scenario to buy.

But where it goes from there is still up in the air. Toth said he needs to see how silver behaves going forward to discern whether it’s simply a break in the larger trend, or the beginning of a much greater reversal move. If silver were to rally back to the mid-$40s and fail to take out the highs, it might be a sign that silver is setting up for a greater, longer-term break.

Bhar is not a fan of silver and wouldn’t suggest buying it unless prices fall back to $25. “The extreme degree of volatility coupled with the sharply higher cost of trading silver on the futures markets, following hikes in margin requirements are likely to see investors using any rallies to exit the market. We remain cautious towards silver,” he said. Source blogs.forbes.com..

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