A vast majority of survey participants in the weekly Kitco News gold survey see higher prices for the yellow metal, based on the likelihood that the debate over the “fiscal cliff” in the U.S. will drag on.
Out of 33 participants, 25 responded this week. Of those 25 participants, 18 see prices up, while two see prices down, and five are neutral or see prices moving sideways. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
The “fiscal cliff,” which is the term given to the package of automatic spending cuts and tax hikes that will occur in January unless U.S. lawmakers agree to prevent it, has occupied headlines and is likely to do so until either a compromise is made or 2012 comes to an end.
“The main risk would be of Washington suddenly coming to their senses and coming up with a comprehensive plan to cut runaway government spending and entitlement programs in order to balance the budget. On second thought, that’s not much of a risk. No doubt there will be soothing words as the problem is pushed further into the future, and gold could react negatively in the short term to that, but fundamentally things are still positive for gold,” said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management.
Others suggested seasonal trends remain in gold’s favour.
Those who see prices unchanged or are neutral on gold all said they expect the market to be range-bound, with the $1,700 (U.S.) area acting as strong support and the $1,735 to $1,750 area as resistance.
“The breakout was a fake-out. Whoever bought gold last Friday as the market pushed to a five-week high realized they had a problem when there was no follow to start this week and liquidated those positions as the market started to move against them. Most markets are now hostage to the fiscal cliff debate, as it is now risk on or risk off at any moment and no one really knows how the situation will turn out. There is also some end-of-year profit taking and tax selling going on, but until there is more clarity on this issue, I expect gold to chop around in a range, so look for prices to be steady,” said Frank Lesh, broker and futures analyst at FuturePath Trading.
A participant who sees lower gold prices said gold’s inability to take out $1,750, combined with Wednesday’s break to $1,700 suggests that the market might try to test the downside further.