2012-05-08

Barclays Sees “Sideways Chop” for Gold, Then 2nd Half Rebound

The gold price dipped Monday morning, by $3.29 to $1,639.60 per ounce, as the U.S. dollar advanced modestly in the aftermath of elections in France and Greece.  The price of gold held in a narrow range in overnight trading despite substantial volatility in financial markets across the globe.  Stocks and cyclical commodities initially came under heavy selling pressure after French and Greek election results raised concerns that each nation will not adhere to various austerity measures aimed at alleviating the euro zone sovereign debt crisis.

Commenting on the jobs data, PIMCO CEO Mohamed El-Erian stated that “Data point to sluggish job growth, declining labor market participation and for those employed, stagnant purchasing power.  Consumption, as a growth engine, is less dynamic at a time when headwinds from Europe and a potential fiscal cliff are still material.”

With gold futures continuing to languish near the lower end of the $1,620-$1,700 range they have occupied in recent months, several market strategists see further consolidation in the months ahead.
In a recent report, analysts at Barclays Capital wrote that “Gold remains locked in a range” with the $1,600 per ounce level likely to provide support. However, the firm noted that “A move above the 1,690 area would confirm our bullish view toward the range highs near 1,800.” Barclays went on to say that “Seasonality leads us to expect a mid-year sideways chop before we become more bullish in the second half of the year.”

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