Pre-holiday trading interest thin

Gold futures for February delivery fell for the second consecutive week to close at $1379.20 an ounce on the Comex in New York, as participants preferred to book profit at the higher levels. As expected, February futures received support at $1,361 and faced resistance at $1,410 last week on account of no fresh commitment from traders.

Trading interest remained thin, as holidays loom. The open interest in the February futures has declined by 3,600 contracts last week on account of thin pre-holiday trade on Friday. “When gold dips, people will come in and buy it,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “But gold has to give a portion back after this year’s rally, so over the next two weeks, gold is going to be vulnerable to year-end liquidation.”

Gold holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, up 15.18 metric tons to 1,289.83 metric tons as of December 17, according to figures on the company’s website. The open interest (OI) in February futures declined as speculators preferred to book profit. The weekly market picture (MKTP) chart suggests strong narrow-band trades in February futures with resistance above $1,397 and support at $1,356.

The value area (1,370-1-1,377) saw 65 per cent volume and 75 per cent price opportunities mostly through a change of hands, which is hinting at accumulation by volume buyers. The initial balance range (1,369-1,374) saw 40 per cent volume mostly through buy-side trades on the last two trading sessions. This indicates that the traders are not allowing the gold price to slip below the $1,370 level.

On a weekly basis, gold is poised to revisit the all-time high of $1,432, the TPO and volume picture chart suggest. The options participants sold $1,400-strike call options of February expiry for $22 premium while they bought $1,350-strike put options of the same series for $17.40 premium.

Gold has surged 26 per cent this year, a heading for a 10th straight annual gain, amid Europe’s burgeoning debt crisis and as the Federal Reserve bought government bonds. Gold assets in exchange-traded products are up 17 per cent this year to 2,097.83 metric tons, according to data collected by Bloomberg from 10 providers.

The 2011 gold outlook from most analysts, simply put, is higher. Gold has been in a decade-long bull market, rising from roughly $250 an ounce to a recent record of $1,432. Many look for still more gains. BNP Paribas has forecast an average of $1,500 in 2011, while Goldman Sachs has a 12-month target of $1,690 (but also cautioned that gold could peak in 2012).