After tumbling from record price levels in the fourth quarter of 2011, gold and silver prices may be poised to bounce back. Gold prices are on pace to close higher for a third straight week as investors could be looking to rebuild their positions in the precious metal after the massive four-month sell off. While last year's correction saw an 18-percent drop from gold's, the commodity still managed to churn out a 10 percent gain for the year, and has been up about 6 percent since the start of 2012.
Short-term prospects for gold could be promising as the dollar has shown some signs of weakness, but, more importantly, a gradual stabilization of Europe's recovery effort could also mean a bullish long-term outlook as well.
“It’s all about the speculation that a Greece debt deal pushes the euro much higher and [the dollar] relatively much lower, thus you can smell the speculation all over the planet in a relatively stronger yen and the metals,” said Richard Hastings, a macro strategist at Global Hunter Securities.
While gold is up 2 percent for the week, the real test is whether or not prices can break through the $1,670 resistance level. The SPDR Gold Trust (GLD) has edged up.
Silver Lining in SLV
The price of silver surged higher today as well, closing the week up almost 8 percent. The iShares Silver Trust (SLV) is up almost 4 percent today, and the ProShares Ultra Silver (AGQ) is up almost 7.5 percent. The pop could be attributed to silver bears covering short positions as the precious metal was able to retake its 50-day moving average, a key technical level that apparently was targeted by shorts. Silver, which has been significantly more volatile than gold, has moved higher by over 10 percent since the end of 2011.
Whether or not prices of precious metals will carry the momentum over to next week, however, will be a key point to watch as China's break from the market could affect demand and price levels given that it is the second largest purchaser of gold and silver.
"The threat of dwindling physical demand as China celebrates the Lunar New Year is curbing participants' enthusiasm" for gold, according to Standard Bank analyst Marc Ground.
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