Gold's summertime consolidation near $1,300 could be calm before the storm - Wealth Managers

New poll finds many investors see opportunity in bullion price dips

Gold dropped nearly 1 percent in quiet trading Monday but was holding near $1,300 after an Institute for Supply Management report showed the U.S. service sector expanded at a faster pace in July.

That expansion is good news, but the gold market (along with stocks) is viewing any positive economic data as a bad sign. That's because the more the economy improves, the closer the Fed comes to withdrawing (or tapering) stimulus, which has supported asset prices for years. However, last week's poor July employment report from the Labor Departmentshows the recovery still had a long way to go, to say the least.

"The jobs report was disappointing," said Richard Sichel, who oversees about $1.9 billion as chief investment officer atPhiladelphia Trust Co. "There's another message there to the Fed to keep waiting. No rush to do things. No tapering in the near future, which makes the dollar a little bit weaker and gold a little stronger."
Short-term weakness ahead?
However, gold's failure to gain much momentum on Friday's news has some investors watching and waiting. Even before then, July 30 Commodity Futures Trading Commissiondata showed that money managers cut their net-long position by 6.5 percent to 65,517 futures and options, while holdings of short contracts rose 6.8 percent.

"In the absence of weaker-than-expected macro data, short covering activity is likely to subside, leaving gold to search for support from the physical market," said Suki Cooper ofBarclays Capital.

"We expect a test of the major low at $1,180, to target $1,156," Scotiabank strategist Russell Browne told clients on Friday. "This is the 61.8% retracement of the 2008-to-2011 uptrend, and should be a major support level for gold." 
43% polled in June have bought more gold, silver
Quiet trading or even some weakness is no surprise. After all, it's summertime, when Wall Street generally goes on vacation, and the cultural drivers that push the price of gold, like India's fall festival and wedding seasons, have yet to resume.

But the price lulls haven't dissuaded bullion investors, at least in Great Britain. According to a poll cited by London'sTelegraph newspaper, "when asked whether they had made any changes to their precious metal investments over the past year, 37% of investors said they hadn't changed their allocations to silver and gold, while 43% had increased their holdings. Just 14% of investors said they had reduced their holdings, while 4% had switched from gold to silver. Only one in 100 said they had sold all of their holdings of the precious metals while 0.7% had moved from silver to gold. The strong support for the metals came despite the survey being conducted in June, just after a major sell-off that saw the price of gold tumble."

And speaking of silver, one major investment bank sees positive signs there, The Wall Street Journal reported: "HSBC raised its average silver forecast for 2013 to $22.90 an ounce, from a prior forecast of $21 an ounce, noting an expected uptick in industrial demand for the metal. The bank said it expects industrial demand for silver, which accounts for just over half of all demand for the metal, to increase by 16 million ounces in 2013 from 2012, to a total 482 million ounces."
Fed hawk sees tapering, but jury still out
Gold also was held in check Monday by comments from noted Dallas Federal Reserve hawk Richard Fisher (who, by the way, reportedly owns a substantial amount of gold in his personal portfolio), who said the Fed is closer to curbing its asset purchases. But that's to be expected from Fisher, who "has a tendency to be a little less dovish than [Federal Reserve Chairman Ben] Bernanke," Randy Frederick, managing director of active trading and derivatives atCharles Schwab, said, tongue-in-cheek, of Fisher, one of the most ardent detractors of quantitative easing. The central banker's comments "could create another bit of angst among people concerned about tapering," Frederick added of the continuing debate over the timing and pace of possible reductions in the Fed's $85 billion in monthly bond purchases.

Stayed tuned this week for more public statements from Fed presidents this week. "The most important events for the market this week are the Fed speakers," said Bricklin Dwyer, an economist at BNP Paribas. "We'll be looking to see how their forecasts have changed and the impact that has on tapering."

On Tuesday, Charles Evans, the president of the Chicago Fed, will sit down with reporters. On Wednesday, Philadelphia Fed President Charles Plosser and Cleveland Fed PresidentSandra Pianalto will take their turns in the spotlight. Also Tuesday, the government will release the trade deficit data for June.

Regardless of today's static performance, if gold can hold $1,300 per ounce, it should start to move higher by the end of the week, RJO Futures broker Phil Streible told TheStreet. "In the long run, you're not going to see that early taper. They're going to continue with the bond-buying program at $85 billion per month for an extended period of time. We won't see any kind of adjustment in interest rates whatsoever, and I think gold starts to move higher because of it." 

More information can be found online at http://www.goldbullionadvisors.com