Gold futures likely to touch $1,418/ounce next week

Gold futures rose to a record $1,398.70 an ounce, posting a weekly gain of $37.90, on the Comex in New York on Friday as investors bought the yellow metal on expectation of a weak dollar ahead. The gold futures for December delivery is expected to cross the $1,400-mark next week on strong buying by speculators in the last three trading sessions after the US Fed said on November 3 it would buy $600 billion in Treasuries through June to spur growth.

The market picture for the last three trading sessions hints at a price level of $1,431 for the gold December futures on the basis of volume. Support on the basis of time-priced opportunities (TPOs) is seen at $1,309. The trading volume and TPOs for the Friday session indicate a volume-based price surge to around $1,418.50 next week.

The December futures saw significant buying, with almost 66 per cent volume changing hands above the mid-point ($1,383). Options traders bought the 1,400-1,425-strike call options and sold the $1,390-1,400-strike puts of December delivery on expectations of a fresh up-move in gold in the near future.

Strong buy-side trades were seen in the 1,400-strike call options for February 2011 delivery at a premium of $41 a share. Traders also sold $1,400-strike put for February delivery. The 21-day moving average (DMA) data indicates resistance for gold above $1,400 and strong support at $1,340. On the Multi Commodity Exchange, gold futures for December delivery are expected to move up to around Rs20,175 per 10 grams.

“Markets are realising that the impact of quantitative easing is a tremendous weakening in the dollar,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “Ultimately, the US Fed is slugging it out to make our currency as cheap as possible. That’s extremely bullish for gold.” Gold prices may simply continue rising until the US Fed’s policy is normalised,” said Tom Pawlicki, an analyst at MF Global Holdings in Chicago.

Gold may reach $1,650 in the next 12 months, analysts at Goldman Sachs Group said in a report. The US Fed’s “return to quantitative easing and the movement of gold prices to these new record highs could spark renewed investor demand for gold, which has been remarkably subdued in recent months,” the analysts said.