Strong support around $1,580

Gold prices will continue to gain strength next week, and are expected to cross $1,600 in a day or two. The only jerk to the spiralling prices will be debt-ceiling talks in the U.S. If an agreement is reached on lifting the debt-ceiling, prices could pull back. However, significant buying interest from speculators below $1,582 will limit the downside, market watchers said.

The August contract for gold futures at the Comex division of the New York Mercantile Exchange settled at $1,590.10 an ounce on Friday, up 3.15 per cent on the week. We had indicated already that gold was set for a record high, and the prices hit a record of $1,594.90 on Thursday. Gold is now set to cross $1,600 level next week, with weekly resistance seen at $1,630.

The August futures saw significant buy-side volume below the point of control ($1,583), and, hence, prices may not move below $1,583 immediately. The 20 trading volume in the initial balance (IB) range ($1,585-$1,588) indicates there were few sellers below IB range. The open interest is almost unchanged, despite a significantly higher volume, indicating the entry of new other time-frame traders. The volume bar for the last 10 sessions shows 65-90 per cent volume below the day’s closing levels, indicating a strong undercurrent. The scanty trading volume in the $1,570-$1,590-strike call options suggests that the call buyers are not willing to sell their holding, despite a 7.4 per cent rise in futures this month. The traders, however, build-up short positions in $1,580-strike put options, which suggests a support level for the August futures.

No wonder then the traders have increased bets on price rise, as the U.S. commodity futures trading commission (CFTC) data shows. Hedge fund managers and other large speculators increased their net long positions in New York gold futures in the week ended July 12, according to CFTC. Speculative long positions increased by 197,597 contracts, while net long positions rose by 39,822 contracts, or 25 percent, from a week earlier.

The price should rise to record highs of above $1,700 an ounce in the next few months, based on the past rallies and Fibonacci number projections, technical analysts said. On Friday, gold rose for a tenth straight session to above $1,590 an ounce, matching a record winning streak set four decades ago. “We would be looking at $1,700 - $1,750 an ounce in the next two to three months,” Tom Fitzpatrick, Citi FX’s chief technical strategist, said.