CNBC – Gold to Bottom Out This Week: Experts

Published: Monday, 26 Sep 2011 | 3:23 AM ET
By: Ansuya Harjani
Assistant Producer, CNBC Asia Pacific

Over the past two weeks, spot gold prices have fallen as much as almost 15 percent and according to some analysts prices could fall further over the next few days before moving up again.

“Precious metal prices are expected to exhibit a V-shaped pattern this week, where weakness in gold takes the market down to support near $1,580/oz before rebounding late in the week,” Tom Pawlicki, Precious Metals and Energy Analyst at MF Global, said in a report Monday.

He added gold prices could rebound later in the week on bargain hunting and if the ECB takes further steps to aid Greece. Slovenia, Finland and Germany are expected to vote this week on whether or not to scale up the European Financial Stability Facility.

“We favor buying a dip in gold at $1,580 and (are) targeting a recovery toward $1,700,” he said.

Gold  pulled back 8.6 percent last week, driven by a hike in margins, a stronger U.S. dollar and selling by hedge funds. On Friday the CME raised margins for gold by 21 percent after a volatile trading week.

“What we have started to see is a mass liquidation of hedge funds, the paper trade is going to be short and I think it’s going to form a beautiful bottom over the next couple of days,” Jurg Kiener, Chief Investment Officer at Swiss Asia Capital, told CNBC.

Kiener recommends buying physical gold or gold-mining stocks over ETFs.

“The physical market in general is still very, very firm but the paper market overall is still all over the place,” he said.

“I think profit margins for (gold miners) are still great as long as gold doesn’t fall below $1,100, so there is ample of room for cash flow to look fantastic,” he added.

Is Gold Still a Safe Haven?
Given the volatility in the market some traders say gold is losing its sheen as a safe haven. “At the moment, I would say the safe haven is the U.S. dollar not really gold,” Michael Langford, Proprietary Trader at StreamTrading.com, said. Langford added that declining inflation expectations are also negative for holding gold.

John Noonan, Senior Forex Analyst at Thompson Reuters, also said the recent volatility in gold is beginning to threaten its “safe haven” status.

“Suddenly when you are getting 3 percent moves per session, (gold) doesn’t become much of a safe haven anymore,” he said.

However, Noonan has not completely written off gold as a safe haven. “The currencies of the world are not presenting a great safe haven value either so I think gold will find a base and move higher again as a safe haven outlet,” Noonan concluded.

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