METALS OUTLOOK: Gold Could Advance As European Concerns Linger

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The concerns over Europe could continue to give gold prices support next week as worries about the sovereign-debt crisis remain at the forefront.
Gold’s safe-haven status could attract buying if those worries reignite; however, not all precious metals market watchers are completely convinced that growing economic woes in Europe will automatically be bullish for the metal. Those market watchers said if the sovereign-debt issue leads to a recession in Europe, then that could be deflationary, which means gold’s role as an inflation-hedge is diminished.
On the week, December gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,635.80 an ounce up 0.83% on the week. December silver settled at $30.993 an ounce, up 3% on the week.
In the Kitco News Gold Survey, out of 34 participants, 23 responded this week. Of those 23 participants, 16 see prices up, while three see prices down and four see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
Arnie Waters, chairman of A.L. Waters Capital, a money-management firm that specializes in precious metals, said he is bullish on gold, and ultimately sees the price at $2,500 by spring. That said, he believes gold could see some final pressure from a few hedge funds that might not have completely liquidated following the losses in nearly all financial markets in September.
The structural economic problems in the U.S. and Europe won’t be fixed quickly and with the Chinese economy showing signs of strain, “gold becomes a proven investment choice,” he said.
The concerns about Europe reignited on Friday after ratings agency Fitch downgraded Italian and Spanish debt to A+ and AA-, respectively. That took the stock market and gold prices off their earlier highs.
Stocks and gold saw gains earlier on Friday after the U.S. Labor Department released a higher-than-expected jobs figure for September in the monthly unemployment figures.
Waters said despite the better-than-anticipated news, he is not putting much faith into the figures. “We have an economic system that is crippled and it won’t be fixed overnight. Even if we had our political system united and had good will, it will still take time,” he said.
Rich DeFalco, president of West Cooper Asset Management, pointed out that the labor statistics also show that the number of unemployed persons is still at 14.0 million, essentially unchanged in September, and the unemployment rate is 9.1% percent. “Since April, the rate has held in a narrow range from 9.0% to 9.2%,” he said.
DeFalco is also supportive of gold, saying that the problems with Europe will be an overhang for equities, even with earnings season coming up for public companies. “We are likely to get some good reports (relatively speaking), but how far can the equity market rally, and can it last without substantial spending reform in the EU? President Obama even sounded an out-of-character warning about contagion from Europe yesterday, and the truth is always worse than what governments prepare you for. There are bound to be some nasty surprises in European balance sheets as things start to unravel,” he said.
The European sovereign-debt situation has many market watchers citing it as gold price-friendly, but there are several who said if Europe slips into recession and the U.S. growth is feeble, this could ultimately dent interest in gold because the metal will have lost the inflation-hedge aspect.  
Silver, PGMs Still Under Pressure
Silver will find support from gold on rallies, but on its own, silver is on shaky ground. Deutsche Bank said in a research note Friday that the disconnect between gold and silver regarding risk reversal is at levels not see in five years. “This indicates that silver is facing more selling pressure relative to gold. Moreover the widening in the gold and silver risk reversals in the one-month to three-month tenor would suggest that the correction in gold is more likely to be temporary than that of silver,” the bank said.
The platinum group metals saw a slight rebound, but continue to underperform other parts of the precious-metals complex. As long as global growth looks to be shaky, the trend should remain, Deutsche Bank said.

The bank is watching U.S. oil demand trends closely for direction to gauge whether the U.S. employment outlook and car sales will pick up during next year. “We find that when U.S. oil demand is negative, it is almost impossible for the U.S. economy to create jobs. We expect this will sustain the underperformance of the PGM complex relative to gold,” they said.