08 April 2011, 2:40 p.m.
By Debbie Carlson
Of Kitco News
(Kitco News) - The trend for gold and silver should continue higher next week as dollar weakness and continued geopolitical uncertainty will support the precious metals.
Gold’s next target will be $1,500 an ounce which could come as early as next week and market watchers see little standing in its way. Silver could target $43 an ounce, but given the velocity of the rise, it might be due for a small correction.
On the week, June futures on the Comex division of the New York Mercantile Exchange settled at $1,474.10, up 3% on the week. May Comex silver gained 7%, settling at $40.608. Gold set a new all-time nominal high this week of $1,476.20 while silver printed a 31-year high of $40.78.
Kurt Kinker, chief market analyst at Mirus Futures, said even though prices have rallied stoutly with no pauses, he isn’t ready to say the markets are overbought.
“There are so many external factors in place (supporting prices). I don’t know if I’d say it’s overbought, but it’s been quite a rally,” Kinker said.
There have been several factors this week which have intertwined to support gold and silver prices. Inflation worries have picked up as several countries, including China and the European Central Bank, have raised interest rates to fend off rising asset prices. That supports precious metals as investors see them as a store of value.
Further, the higher rates have lifted the euro at the expense of the dollar, and given precious metals are denominated in dollars, dollar weakness gives those markets underlying support.
The dollar also suffered the week over squabbling between Democrats and Republicans over the U.S. budget. There are threats the U.S. government could shut down next week if an agreement between the two parties is not reached.
How gold might fare in the very short-term under either outcome is questionable, Kinker said, but in the long-term the U.S. has to face its spending and budget issues. “Spending is enormous, and some of it came under (former President) Bush, but a lot of people realize the path we’re on is unsustainable. Just figuring out what gets cut is difficult. It’s always easy to cut something that doesn’t affect you,” he said.
Mark Leibovit, editor, VRGold Letter, said the discussion around the potential government shutdown is not the point. “That’s politics as usual. What you have here (with gold rising) is the market climbing a wall of worry,” he said.
He noted markets that can make new highs even with bad news are bullish signs. He is bullish on gold in the short-term as volume in the market is robust as it makes new highs. For the long-term he is also bullish as the reasons that have propelled gold to this level - concerns about fiat currencies, sovereign risk and desire for hard assets - remain.
Looking ahead to next week, Kinker said $1,500 is the obvious resistance and it represents a “significant” level. Many market analysts estimated gold would reach $1,500 this year, although likely not this soon. Kinker said he has heard talk of $1,700 the next intermediate target for gold.
Because of the big move up for the market, support for gold is distant if prices fall. First support is around $1,425-30 and then $1,370-75.
Leibovit also is targeting $1,500 for gold. Once it gets there he said will determine his next step. “I want to see what the market looks like. I want to see volume and sentiment. So far the advance for gold is orderly,” he said.
In silver it’s even more difficult to look at resistance and support levels. “The move there has been extraordinary,” Kinker said. “I’d find it tough to be long here if I was just getting in.”
What’s made it difficult to trade these markets is the shallowness of any correction, he said. “Participating in these markets is difficult because you’re not given much opportunity to get in,” he said.
Leibovit said his target for silver is $43-$48, but said a correction for the gray metal is possible. “This market needs to settle back at some point, but the trend is still up,” he said, with a potential retreat to $38 if prices fall.
He also said he is watching crude oil carefully as sharp rises in energy prices can slow the economy. Crude oil prices have gained around $4 a barrel this week, touching $112. So far it hasn’t impacted other markets since as the stock market, but if the push higher continues, it may stifle gains in other markets.
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