Gold Could Possibly Bounce Next Week

Subject: Gold Could Possibly Bounce Next Week Sat Jan 15, 2011 9:58 pm

After
spending the first two weeks of the year weaker, gold prices could be
ready for a bounce, especially if the markets return to worrying about
European debt.

February gold futures prices settled at $1,360.50 an ounce on the Comex
division of the New York Mercantile Exchange, down 0.6% on the week.
March silver futures settled at $28.32 an ounce, a fall of 1.2% on the
week.

Several successful bond auctions this week by economically shaky
southern European countries – Portugal, Spain and Italy – temporarily
eased some of the fears about sovereign debt among peripheral nations.
That took away some of the safe-haven demand for gold, said Adam
Klopfenstein, senior market strategist with Lind-Waldock. Further asset
allocation as investors finished rebalancing commodity indexes also
caused some movement out of gold.

China’s central bank announced a rise in the reserve-ratio requirement,
due to take effect on Jan. 20, which also pressured prices on Friday.

But once the impact of the Chinese move fades, the market could start
worrying again about the longer-term European structural debt problems.
This is likely to become a background factor offering support again,
Klopfenstein said.

“That’s going to give gold more flight-to-quality buzz. I think gold is
going to approach $1,400 next week,” Klopfenstein said. “Anything from
there will be based on market momentum. But I do think we’re going to
have a strong rally next week.”

He described this week’s European bond auctions as “delaying the inevitable,” or further crises.

“Until we get a clear resolution of the European debt situation…that
will be in the backdrop,” Klopfenstein said. “And as long as that is the
case, gold will be well supported. I don’t expect a major drop below
$1,350.”

Spencer Patton, president and founder of Steel Vine Investments, also
doesn’t see the European debt situation going away anytime soon.
“There’s never been an unsuccessful auction in the past, but rates are
still too high to be sustainable. Even in countries that got bailed out,
auctions are successful, but rates are unsustainable to float debt,”
Patton said.

Charles Nedoss, senior market strategist with Olympus Futures, looks for
gold to bounce next week on technical-chart factors, since the market
is range-bound but currently closer to support underneath the market
than the resistance above. Furthermore, he said the dollar index looks
technically negative, and further declines would be supportive for gold.

February gold has been turned back lately from chart resistance at the
10-, 20- and 50-day moving averages, which all lie roughly in the area
from $1,384.50 to $1,388.50, he said.

But at the same time, the metal is showing signs of holding support on
the basis of a weekly chart, Nedoss said. This includes last week’s
$1,352.70 low, which roughly coincides with the 20-week moving average
around $1,350.

“I think we’re starting to get to the low end of the range here and
start to work higher next week,” Nedoss said, although there might be a
“fight” once it gets back to the daily moving averages currently in the
$1,380s. “I think eventually – maybe not next week but over the course
of the next couple of weeks – we’ll take those levels out and we’ll see
the dollar (index) take out the 79.00 level.”

Patton is keeping an eye on a possible head-and-shoulders formation on
February gold charts. He said it’s not a perfect technical chart
pattern, but he points to two left shoulder tops from October and
November, the head being the high from early December and the right
shoulder the late-December/early-January highs.

The neckline of that asymmetrical pattern comes in around $1,360. If
that is broken, Patton said prices could fall to $1,300. Beneath that
level trendline support is at $1,280.

Those would be good buying opportunities, if prices fell that far, and
he expects buying to come in if a break like that occurred.

Silver’s short-term outlook is a little more tenuous, he said.
Currently it’s holding above chart support around the $28.20 to $28
area.

“I’m more concerned about silver than I am about gold. The charts seem
to suggest a topping pattern – maybe it’s a window into gold,” he said.

Patton said support for silver does not come in until around $25, a
level where it broke out of resistance. That means silver could fall
further if downward momentum were to pick up. Trendline support comes in
at $21. “Silver is more volatile than gold and it could fall another
10% - I think it could test $25,” he said. “If it does, it would be a
good buying opportunity.”

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