(Kitco News) - Most-active gold futures poked above $1,500 an ounce Tuesday in a market drawing support from economic, geopolitical and sovereign-debt worries, and traders say they see more upside to come.
Around 1 p.m. EDT, June gold on the Comex division of the New York Mercantile Exchange was $4.60 higher at $1,497.50 an ounce. It peaked at $1,500.50 an ounce, a record for a most-active contract.
Silver continues to rise with gold on many of the same factors, but often bought as a cheaper alternative to gold and also prospects for increased industrial demand as the economy recovers, traders said. May silver was up 76.9 cents to $43.725 an ounce, peaking at $43.82. This precious metal is at 31-year highs.
Gold came within a finger length of the psychologically important $1,500 level Monday, boosted when Standard & Poor’s downgraded the outlook for U.S. debt to negative from stable, even though S&P left the actual rating alone.
At Tuesday’s peak, June gold was up 5.2% so far for the year. Further, the market was up 14.5% from the Jan. 28 low after an early-year retreat, before a series of events rekindled the long-running uptrend. At the high for the day, May silver was up 41.4% for the year and up 66% from the Jan. 28 low.
“Gold prices came under significant selling pressure at the start of the year on the back of a run of positive macro data,” said a daily research report from Barclays Capital. “However, since then, the year’s low prices have been propelled higher by a raft of factors supporting investor demand. Rising geopolitical tensions across the MENA (Middle East-North Africa) region, uncertainty following the events in Japan, fears of higher inflation, a weaker dollar, the recent resurfacing of European sovereign debt risk, and now heightened concerns over the U.S. have outweighed the recent rate hikes to drive prices to fresh highs.”
It remains to see whether some of the recent profit-taking will continue around $1,500, since this had been the upside objective for a number of traders. Still, observers say the fundamental backdrop is conducive for further investment demand.
“There is a lot of speculative buying obviously due to higher energy prices in the last few weeks, due to the chaos going on in Libya and the Middle East,” said Mike Daly, gold and silver specialist with PFGBEST. Further monetary tightening by Chinese authorities shows that inflation remains a worry in the country, he continued. There are also ongoing debt worries in nations such as Greece, Portugal and Ireland, Daly said.
“We’ve been technically overbought for a long time, but the global and economic conditions have dictated for speculators to be putting their money into tangible assets such as gold and silver,” Daly said.
Whereas much of the market banter for the last day has been U.S. debt, inflation remains a major worry for the market, said Zachary Oxman, managing director of TrendMax Futures. He sees $1,500 as “just the start” and anticipates momentum-based buying if the market breaks above here convincingly. He also envisions buy stops just above here. These are pre-placed orders triggered when certain chart points are hit.
“If we move through $1,500 and then $1,520, then we really start moving,” Oxman said.
The pause that had been occurring just below $1,500, prior to lunchtime in New York, was blamed largely on profit-taking. In essence, some traders were saying, “You know, maybe we’ve come a little bit too quick too far,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.
Additionally, traders were showing some caution about buying at $1,500 due to uncertainty about the immediate price reaction--whether this would be profit-taking or momentum-based buying, said Bob Haberkorn, senior market strategist with Lind-Waldock.
Afshin Nabavi, head of trading at MKS Finance, described a scenario in which profit-taking was contributing to range trading. Market participants were selling gold on approaches of $1,500, only to buy it back on pullbacks. He looked for some back-and-forth activity in the short term between roughly $1,500-$1,498 on the upside and $1,490-$1,485 on the downside.
The S&P announcement on U.S. debt was only one of many factors underpinning prices, he pointed out.
“In every corner of the world, there is something going wrong geopolitically or economically,” Nabavi said. “So obviously, the safe-haven buying continues in gold and silver.”
By Allen Sykora of Kitco News