CHICAGO, Feb 26. Precious metals are expected to trade in a mixed direction in March, as they sort out the tugs-of-war between whether the economy is strengthening or weakening, and whether the U.S. or the Eurozone deserves the stronger currency.
We anticipate gold prices to range between $1,060-$1,130 this month, with silver ranging from $14.65- $17.00. Platinum still appears strong, and should maintain its upward direction, with a range from $1,500-$1,600.
Precious metals have been jostled by technical factors in the second half of Feb. Open interest in gold, for instance, fell 92,590 contracts from a Nov 23rd high to a Feb 12th low, or 16.8%. The COT data recently showed a 30.8% decrease in the non-commercial net long in a similar period. Both indicators suggested that a major liquidation of longs had taken place and that the market was free to resume buying.
A bullish wedge pattern in gold and a developing head & shoulders bottom in gold and silver bolster that argument. The latest COT data showed that a large short also existed in the euro and sterling. Combining that with a 7,400 contract build to gold’s non-commercial holdings in the w/e Feb 16th, suggests that metals can benefit from even minor weakness in the dollar. Benefit can also come from a picture of slow economic growth in the U.S., where weakness in home sales and consumer confidence in late-Feb increased the chances of a double-dip recession. Such a condition can increase pressure on the dollar and stock market, and boost the favorability of precious metals as an alternative investment. Prospects for the economy don’t appear likely to get much help from Washington, where focus shifted from healthcare to jobs in late-Jan and back to healthcare by early-Feb.
While the COT data showed a build in non-commercials’ net longs, open interest data has yet to reverse higher, and represents a negative influence. Ongoing problems in Greece won’t find a quick solution and could weigh on the euro. The Fed’s unwinding of emergency stimulus should also boost the dollar. Pressuring gold will also be the Feb 17th Gold Demand Trends report which showed a surplus of 504 tonnes in 2009 vs. a 293 deficit in 2008.
The rally in gold prices in Sep-Nov helped create a 119.7 tonne surplus in Q4, with key physical buyers shut out from the market during key holiday and festival seasons. On Feb 19th, we learned from VM Group that a key spark for the Sep-Nov rally was a sharp 34% reduction in the hedge book. These factors should keep metals prices from getting out of hand on the upside this year. As a result, we’re lowering the upper boundary of the price range given in our Dec 22nd 2010 outlook to $1,225 from $1,350 and the lower boundary to $1,018 from $1,033 originally. Our forecast for average and year-end prices is unchanged at $1,150.
