August 17, 2010
By Allen Sykora
Of Kitco News
(Kitco News) — Worries about a fragile U.S. economy are likely to keep investors shifting toward gold and could push the metal to fresh record highs near the $1,300 area by year-end, analysts and traders say.
December gold futures early Tuesday peaked at $1,231.10 an ounce on the Comex division of the New York Mercantile Exchange, their strongest level since late June. They eventually settled $2.10 higher at $1,228.30 an ounce.
As of 3:36 p.m. EDT (1936 GMT), spot gold was 60 cents higher at $1,226.10.
Mike Daly, gold and silver specialist with PFGBest, looks for gold to “go much higher” than the record hit earlier this summer due to uncertain U.S. economic conditions and a still “fragile” environment in Europe, where sovereign-debt issues were a major focus earlier this year. The peak for a most-active Comex futures contract was $1,266.50 back in June.
“Economic numbers here, such as housing and jobs growth, have been very negative,” Daly said. “That is giving savvy investors globally a lack of confidence in fiat currencies. Most people right now, who have disposable income, are preferring to get into more tangible assets, primarily gold and silver, for a safer-haven investment.
“They see that gold and silver and precious metals in general have retained value better than most commodities over the last couple of years.”
Kevin Grady, a trader on the Comex floor with MF Global, cited continuing foreclosures are a harbinger of further support for gold, since it shows many Americans are still struggling amid weak economic conditions. In fact, with a federal-funds-rate target of zero to one-quarter percent, the Federal Reserve is essentially offering “free money” to banks with the hope lending will jump-start the economy, he said. Yet, many Americans are not able to borrow, unless they have a high credit rating and cash for large down payments.
“And the people who have money are saving,” said Grady, who looks for $1,300 gold by January. “People are holding onto what they have.”
Meanwhile, government debt continues increasing.
“I think it’s a slow grind, but gold should go much higher from here,” Grady concluded.
Michael Gross, broker and futures analyst with OptionSellers.com, described his company as “cautiously bullish” on gold on ideas that any economic recovery could be “spotty.” Still, the metal could experience “fits and starts” rather than moving up in a straight line. He figures gold could “modestly eclipse” the highs from June in the foreseeable future and later in the year potentially hit $1,275 or even push $1,300.
Further support may come from political uncertainties in the U.S., with congressional elections this fall, as well as debate among lawmakers on whether to continue some or all of the Bush Administration tax cuts due to expire at the end of the year. This could put some pressure on equities and prompt some movement into gold, Gross said.
“Uncertainty tends to be good for precious metals,” Gross said. “If people are not sure what to do with their money, they put it into gold. That seems to be the safe and conservative bet, and we expect that to continue in the second half of the year.”
Investors are “tired” of the uncertainty in which government or central-bank officials suggest improvement in the economy, with their comments followed by weak jobs data, Daly said.
“There is so much fear based on what is going on in Washington,” said Bob Haberkorn, senior market strategist with Lind-Waldock who also anticipates $1,300 gold yet this year. “You’re getting new investors looking at gold and silver.”
Charles Nedoss, senior market strategist with Olympus Futures, looks for further U.S. dollar weakness, which in turn tends to support gold. Investors often buy the metal as a hedge against a softening greenback, plus a weak dollar makes commodities less expensive in other currencies and thus can boost demand.
Low market-set interest rates, as a result of a soft economy, may result in an eventual retest of the 80 area for the dollar index, Nedoss said. It currently stands just above 82.
“I just don’t see that turning around,” said Nedoss, also anticipating $1,300 gold. “I think the economy is showing us now that it’s fragile enough that it can’t withstand higher rates.”
Seasonal Factors Could Provide Additional Support
While analysts describe macroeconomic conditions as favorable, the calendar is approaching the time of year when gold tends to get a seasonal boost.
“We’re getting closer to the (autumn) wedding and festival season in India,” Daly said. “That is normally a time when gold spikes a little bit.”
September and October tend to be strong months for silver and gold alike, Haberkorn said. “Of all years, from an economic standpoint in this country and around the world, I think an upside move is more than warranted,” Haberkorn said.
Once the gift-giving season winds down in India, physical buying of gold often continues ahead of Christmas in Western nations and later the Chinese New Year.
Still, Gross cautioned that the economy will remain the key catalyst more-so than any seasonal tendencies. In recent years, gold has traded “almost exclusively” based on economic expectations, he said.
“I would expect that to continue,” Gross said. “Any physical (seasonal) support would certainly help gold, but we don’t see that as the potential major price determinant for gold over the next several months.”
By Claudia Assis, Aug. 25, 2010, 1:01 a.m. EDT
