Gold Mood Positive in March

By Neil Behrmann

The mood of the gold market is mildly positive, according to a survey of major players directly involved in the market.

Just over a third of our respondents predict that gold will trade above $585 in three months time, although they caution that the market is volatile and there could be dips in between. Another third expect prices to trade between $570 to $575, while just under a fifth contend that gold will be down to $525 to $535. Respondents expect the dollar euro rate to trade in a tight narrow range, so the views of the euro gold price are similar. The predictions in the Gold Market Sentiment table should not be used as buy or sell guidelines in a market where gold has been trading in a range of $535 to $565 in the past six weeks (see chart). They are merely there to reflect market mood.

Hedge, managed futures funds and investment demand, including the sharp rise in gold ETF purchases, have been the dominant influence on the market. On the other hand, major bullion banks, refiners and Japanese commercial traders report lower jewellery and physical demand. When prices dip below $540, physical demand picks up report traders, but anecdotal reports indicate varying degrees of lower consumption from levels when gold was around $450.

The main concern of traders is volatility, which can be a deterrent to physical demand. In the past few weeks gold has come under the influence of silver, which is fickle and relatively illiquid, compared with gold. Most precious metals professionals surveyed are relaxed and expect that gold will follow silver upwards and the recent $10 single day jump to $560, was mainly in response to silver surging to $10.77 an ounce, the highest level since the eighties. With the exception of a single respondent, most were bullish on silver with most expecting prices of $11 to $12 an ounce at the end of June 2006, with one American bull calling $14.5. The market buzz is that the expected launch of the silver ETF will be as successful as its gold counterparts and boost investment in the metal.

Technical analysts note that Silver’s momentum with daily price and moving averages in an upward trend are contrasting with the flattening sideways trend for gold. Thus several managed futures funds have been switching from gold to silver. A cautious hedge fund manager, who expects a further possible spike and then drop to around $8 to $9 by end June, cautions that the market is already long on silver. If expected ETF silver investment disappoints, there could be a sharp price reaction, noting that silver has risen by 54% to a peak of from around $7 in only six months, he contends. There then could be a switchback to steadier and more liquid gold.

Gold Market Sentiment

Gold

per ounce

$ Gold

€ Gold

3 months Forecast

 

End June 06

End June 06

High

 

590

491

Low

 

525

435

Average

 

572

473

Median

 

575

476

 

 

 

 

Market Spot

24/3/06

560

467

Market 3 months

24/6/06

567

472


Several major London and New York traders, Japanese firms, a refiner, hedge fund and mining corporate finance boutique, participated in the survey. The predictions mainly come from individual traders. Since they are confidential,and are not the bureaucratic” house view” the survey is thus a fair indication of market mood. Gold forecasts are also in Euros, to counter any bullish or bearish dollar bias. The forecasts should not be used for buying or selling purposes. They are merely a guideline on current gold market sentiment. The survey of 11 participants took place on Thursday and Friday, March 23 and March 24, when gold traded between $549 and $560 an ounce.

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