Traders ballpark new gold ceiling

Gold has breached yet another psychological barrier in its steady march upward. But with all the hot money moving into silver, there are conflicting views about when it may reach the next one, even as confidence in the U.S. dollar continues to erode.
As the key gold futures contract temporarily passed US$1,500 an ounce Tuesday, traders quickly started eyeing the next round number. The thinking is that if investors get used to the idea of US$1,500, a rapid move up to US$1,600 could be made in short order. That view was supported by Standard & Poor’s decision to turn negative on its outlook for U.S. debt.
“It does seem that once you break through a particular level of resistance, it brings new money into the equation and allows continued strength in the gold price,” said Chuck Jeannes, president and chief executive of Goldcorp Inc.
But recent history suggests breaking through has not been that easy.
It took extended periods for gold to get through prior psychological levels like US$1,000 or US$1,200. In each case, it flirted with those highs for many months before finally pushing through.
“If people say US$1,500 is going to be the top, a lot of traders start filling their sell orders there and it becomes a self-fulfilling prophecy,” said Aaron Fennell, commodity futures specialist at ScotiaMcLeod.
“But I think in this case, traders aren’t looking at US$1,500 as the top of the market at all.”
But in trying to predict future performance, he pointed out a broader truth: that despite gold’s spectacular performance, there has been surprisingly little interest in it.
Over the last several months, it is silver, and not gold, that has captured the imagination of investors and gone on an amazing run. Since the start of October 2010, silver has climbed roughly 97%. Gold, by comparison, is up 14%.
“Gold has just grinded higher slowly. It hasn’t really had that much enthusiasm around it,” Mr. Fennell said.
It was the same story on Tuesday. While gold drew a lot of headlines for reaching a landmark price, the June contract ended the day below US$1,500 and up just 0.1% in total. By comparison, silver jumped another 2.2% to US$43.91, the highest closing price since the Hunt brothers tried to corner the market in 1980.
Looking back over the last decade, experts pointed out that gold has never had the kind of massive break-out that silver is experiencing now. Despite the general view that gold prices are “soaring”, the move upward has been quite orderly, with a new high being reached every year. Other commodities like nickel, uranium and potash have had much stronger upward (and downward) moves.
“That’s something I always point out to people who talk about gold being in a bubble. This has been a long-term move,” Mr. Jeannes said.
Given that fact, experts refuse to put too much emphasis on the move to US$1,500, and focusing on long-term fundamentals instead.
“It’s so sentiment-driven that you’ll just be pulling your hair trying to guess what it’s going to do next,” said Pawel Rajszel, an analyst at Veritas Investment Research who is more bearish than most of his peers.
Financial Post