Analysts say that gold prices are likely to be helped in large part by continued buying to cover short positions, which speculators built up in early December.
In the wsj News Gold Survey, out of 34 participants, 17 responded this week. This was less than normal, with many still away from their desks for an extended Christmas holiday. Ten see prices up, while five see prices down and two see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
“The year-end long liquidation seems to have ended and mild short covering has taken over since the recent low on Dec. 19 as open interest declined 5% over the past four days,” said Ken Morrison, founder and editor of an online newsletter, Morrison on the Markets. “I expect a bit more short covering can carry gold a little higher into downtrend resistance at $1,230 in the week ahead.
“It's interesting to note the number of non-commercials reporting open futures positions to the CFTC (Commodity Futures Trading Commission) is the lowest level since December 2008, and down 35% y-o-y (year-on-year), while the number of commercials reporting a futures position is the highest level in at least six years. The takeaway here reinforces how specs are opting to avoid gold even as commercials feel more compelled to hedge price risk at $1,200 than at $1,600-$1,700.”
Participants each way cited technical-chart considerations. Darin Newsom, senior analyst with DTN, looks for higher prices, with Comex February gold able to hold the $1,186 low hit Dec. 19. “Weekly Stochastics are turning bullish,” he added.
Meanwhile, Ralph Preston, principal with Heritage West Financial, looks for more weakness based on the chart picture. “The highs of August and October mark a descending trend line that is clearly intact – only (a) break above this descending trend line marks a possibility back to trending bull market,” he said. “Otherwise, the risk of cascading down to $1,050 in the coming weeks remains a real possibility.”
Jim Wyckoff, chief analyst for Metals, looks for steady to weaker prices over the next week. “Technicals remain firmly in the bearish camp,” he said.
Last week, survey participants were mixed, with a slightly higher tally seeing prices down (11 down, eight up and four neutral). As of 11:30 a.m. EST, Comex February gold had gained $10.20 for the week.
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