Range-bound trading likely on Monday, Tuesday

Gold fell nearly two per cent yesterday to close at $1,635.80 an ounce, from an intra-day high of $1,668, on profit booking by traders. It still notched its first weekly gain in a month, up $13.50 or 0.83 per cent. According to Bloomberg reports, some investors still believe the Federal Reserve may introduce new measures to stimulate the US economic growth, which would support gold as a store of value. But others see more downside risk if investors need to sell gold to cover margin calls for losses in other financial markets.

The trading pattern on Friday in the most-active December gold contract on the Comex division of the New York Mercantile Exchange suggested a price range of $1,625-1,685 an ounce next week. The lower-end support for December futures is expected to come at $1,597, the market picture chart suggested. TPO counts above (37 per cent) the point of control (PoC-1,655) hinted at a strong selling pressure above 1,655. Participants expect the December futures to consolidate around yesterday’s value area (1,640-1,662), which accounted for 70 per cent volume, mostly through buy-side trade.

Trading in call and put options remained sluggish on account of volatility. Selling was witnessed in the $1,650-strike December series call options at a premium of $85. The $1,600-1,625-strike put saw sell-side bias, as traders expect gold may not go substantially below $1,600 in the near future. However, 70 per cent volume above $1,650 indicates gold has limited potential to move above that level.

The release of minutes of last month’s Federal Open Market Committee’s meeting on October 11 is expected to weigh heavily on gold prices, undermining the metal’s appeal as an alternative store of value. In the Kitco News Gold Survey, of the 23 respondents, 16 see prices up, while three see prices down and four see prices sideways or unchanged. The European situation is the main influence for gold’s direction for most of the market participants, whether they see higher or lower prices. Some of those who see stronger values next week cited gold’s safe-haven role as a support.