Silver prices remain volatile, but the tone toward the metal remains negative, especially as recent economic data suggests a possible slowing of industrial demand.
June gold futures on the Comex division of the New York Mercantile Exchange settled at $1,508.90 an ounce, up 1.024% on the week. July silver futures settled at $35.087 an ounce up 0.211% on the week.
In the Kitco News Gold Survey, out of 34 participants, 19 responded this week. Of those 19 participants, eight see prices up, while eight see prices down and three see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.
Following the recent volatility in prices, several market watchers said they’re looking for gold prices to consolidate and try to establish a new price range before deciding on the next way to move. Several market watchers said gold could trade between $1,480 and $1,520.
Technical analysts at Barclays Capital said if gold breaks support at $1,460, it may drop to $1,410, an area they said would represent a buying opportunity. They are near-term bearish on silver. If silver falls under $32.30, then prices could tumble to the $29.40-$30 region.
Ira Epstein, director of the Ira Epstein division of The Linn Group, said in the near-term he believes the negative seasonal tendency for metals to slip will take over. Epstein is a veteran of the markets and has followed the historical tendencies for metals.
“The month of June is not often friendly to gold or silver prices according to historical data provided by the Moore Research Center, Inc. Fall months are friendly in bullish environment years, due in part to demand for material stock for jewelry sales that begin pick up for the December holiday season,” Epstein said.
Epstein said the inflation theme has begun to stall out, noting the drop in the CRB Index, an index that tracks certain commodity prices.
“I remain in the bear camp (for gold) until prices turn around,” he said.
Later this summer he said it’s possible he might change his mind, but “it appears that right now the market bears remain in control.”
Those who see gold prices rising next week cite renewed concerns in Europe. The ongoing sovereign debt issues with Greece reignited when comments from the European Central Bank and the International Monetary Fund suggested that without further austerity measures and sale of assets by Greece, the ability of Greece to be able to repay debt soon coming due comes into question.
Furthermore, several market watchers said they are keeping an eye on the outcome of this weekend’s regional Spanish elections, which come ahead of next year’s national elections.
Media reports said it’s expected the ruling Socialist party will lose, with some polls showing they are likely to lose nine of the 13 regions and some key cities like Barcelona.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said the election is important because regions control spending on health care and education and account for half of government employees. They have an outstanding debt of 115 billion euros, about US$165 billion.
Chandler said there’s a risk that once new governments come into power they may find the deficit is much greater than expected. That happened in Spain’s largest region Catalonia, which said its deficit was really 60% more than what the previous administration said.
“It is thought that ahead of the regional elections, the existing governments have little incentive to implement the agreed upon austerity measures. The new regional governments will be under pressure to take most of this year’s fiscal measures in the remaining months of the year,” he said.
Tom Pawlicki, metals analyst at MFGlobal, said he thinks overall that gold prices are expected to maintain a slightly higher trend over the next one to two weeks, provided support from the 50-day moving average in gold at $1,470 is held.
News this week from the World Gold Council gives underlying support. The industry group said in its first quarter demand trends that total demand rose by 4.6% quarter-over-quarter and 10.5% year-over-year, while total supplies fell 23.0% quarter-over-quarter and 4.4% year-over-year.
“We believe (it) will offer a generally bullish impact on gold prices. Forecasts on Chinese demand and official sector buying tipped the balance in favor of higher gold prices,” Pawlicki said.
The report showed that China surpassed India as the largest consumer of gold, which several analysts said will offer a floor for gold prices.
Next week brings durable goods orders and the revision to first quarter U.S. gross domestic product. MarketWatch expects a drop in April durable goods orders of 3%, versus the 4.1% rise in March. They said the GDP is expected to be revised slightly higher, to 2.2%, from the initial reading of 1.8%.
Pawlicki said some pressure in gold could come from weakening of industrial demand due to economic weakness and from a potential resumption of the commodity liquidation.
“There is still a tug-of-war taking place between those who believe the commodity trade has peaked in front of the end of QE2, and those who believe it is just a correction,” he said, adding that he is the later camp.
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