18 May 2012, 2:09 p.m.
By Debbie Carlson
Of Kitco News

(Kitco News) - Momentum may carry gold prices higher next week after the metal bounced off multi-month lows, with market participants watching how events in Europe unfold in the coming days.

Prices were higher on Friday and mixed on the week. The most-active June gold contract on the Comex division of the New York Mercantile Exchange rose Friday, settling at $1,591.90 an ounce, up 0.50% on the week. July silver rose Friday, settling at $28.715 an ounce, down 0.61% on the week.

In theKitco gold surveyout of 33 participants, 23 responded this week. Of those 23 participants, 21 see prices up, while two see prices down, and zero are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Several analysts who follow technical-chart patterns said this week’s low of $1,526.70 for the June futures was important to hold and may provide a stronger base of support for the market if prices fall again. These analysts said gold could target $1,625-$1,640 next week if momentum continues up.

Gold prices rallied on hopes for another quantitative easing after the Fed meeting minutes suggested again that the Fed stands ready to act. Further support came from weaker-than-expected data on Thursday, specifically the drop in U.S. leading indicators and the Philadelphia Fed index.

Yet analysts at Barclays said those who only focus on Thursday’s news have too narrow a view as U.S. data is mixed. Thursday’s weaker data “follows strong industrial output and housing starts in April, a rebound in the Empire state manufacturing index and the strongest builder sentiment in five years. Jobless claims held steady, and point to a modest uptick in payroll growth in the May employment report on June 1.”

After two days of sharp gains, some analysts suggested gold might have turned a corner for price direction after recent weakness. They pointed out that gold’s ability to rally Thursday as risk assets fell might signal a new direction for gold, returning it to safe-haven status, but others urged caution, saying that one day does not make a trend.

Edward Meir, commodities consultant for INTL FCStone, said while Thursday’s bounce was “impressive,” he wants more evidence that gold’s recent gains have legs.

“We still are not that comfortable with the European situation, which still has the potential of going off the rails between now and June 17th, at which time the Greek situation should clarify itself,” he said.

Meir and other market watchers said given the unknowns in Greece between then and now, the U.S. dollar should stay stronger and added that time will tell whether gold has become a safe haven on its own or if this week’s action was just a short-covering rally. If gold can gain in tandem with the dollar, it may have returned to safe-haven status, as normally the gold falls versus the greenback because the metal is denominated in dollars.

“Much will depend not so much on the European debt situation, as opposed to whether the global macro environment starts to deteriorate even further. Such a scenario would help gold’s upside more, as central banks will then be expected to be more aggressive in terms of quantita­tive easing laying fertile ground for a more sustained advance in gold,” Meir said.

WHAT TO WATCH NEXT WEEK

Traders will look to this weekend’s G-8 meeting and any message sent from the confab on what measures might be taken by policy-makers to boost growth and deal with Greece, analysts said.

The U.S. economic data calendar is light going into next week, so market watchers may look for direction from China's HSBC flash Purchasing Managers Index and Germany's IFO Index. Also next week there is the EU Summit, which could provide plenty of headlines as government officials try to balance austerity and growth.

Gold is expected to rise next week, but not everyone sees it changing the recent trend. Daniel Pavilonis, senior commodities brokers with RJO Futures, said looking toward next week gold might have the chance to add a little more to its gains, but sees the market topping out around $1,630-$1,640. Much of the strength in gold comes from hopes of another round of monetary stimulus, which is something he doesn’t foresee happening. At most, he said, the Fed may try to shift around the balance sheet in an effort to keep down longer-term yields. That would not be supportive for gold.

Pavilonis also said prior to the rebound off the $1,520s area, gold had been drifting lower, while U.S. bond yields were falling and German bund yields rising. He’s not convinced gold is a safe-haven asset yet. What also concerns him is the general economic slowdown globally, which hurts demand for everything, including gold. Crude oil prices are falling, which is another side of economic weakness.

“In the near-term I see gold up a little more from here, but then I see it coming back down. If we break this week’s low, there’s nothing to stop it until $1,470 and then maybe $1,420,” he said.