Gold prices settled at a record Monday and investors jumped at the high price to take profits. Also weighing on gold Tuesday was the fact that option contracts for August will expire on the Comex at the end of the trading day.
"Today you have to be cautious," warned Phil Streible, senior market strategist at Lind-Waldock, who thinks Tuesday's gold price will be dominated by technical trading and that investors will need to wait for Wednesday to find direction.
Streible said that the market will most likely stay below the $1,620 level pressured by this technical trading and will most likely close between $1,605 and $1,615 an ounce.
Investors had been piling into the metal as protection in case Washington cannot reach a deal to raise the debt ceiling by Aug. 2, but complete disaster should have pushed gold to $1,700 instead of stalling out at $1,600 leaving many analysts to predict lower prices.
"Most likely a deal will get done [which] should put pressure on the gold and silver market," said Streible, who thinks gold will find support at $1,580 and silver at $37.80 an ounce. Streible is putting his money where his mouth is and scaling out of some of his gold positions while buying put options for protection, which means he is betting on lower prices.
Streible does think that if House Speaker John Boehner's debt plan is chosen -- in which the debt ceiling will be raised in two tranches pending more spending cuts -- gold could rally on continued uncertainty. Gold "depends on what deal gets passed."
In the latest commitment of traders report for the week ended Tuesday, July 19, traders increased their gold long positions by almost 15,000 contracts and decreased their shorts by 6,700 which signals a bet on higher gold prices.Other experts seem to think that higher gold prices are a done deal. James Moore, research analyst at FastMarkets, said that as the dollar's dominance as a safe-haven continues to erode gold will pick up its slack. "Dips [should] be viewed as buying opportunities and the metal [will] look towards $1,650," Moore said.
Jon Nadler, senior analyst at Kitco.com, argued that although net shorts were reduced that they are still 35% higher than a year earlier. "Net longs are three-week-old pile-ons," meaning that long traders could dump gold and run at the first sign of lower prices.
Nadler believes there are two camps in the gold community right now. The first says gold is going higher. This camp thinks that if the debt ceiling is raised, the government will have to pump more money into the system, devalue the dollar and support higher gold prices. If the U.S. defaults, then gold will pop as a safe haven. The high end of the range is between $1,650 and $1,750 an ounce.
The other camp, of which Nadler is a member, thinks that either way gold prices will head lower with the bottom of the range between $1,250 and $1,350.
"If you have real spending cuts," Nadler said, "can't you argue that the economy will contract and if the economy contracts what are you doing pumping metals higher?" If the U.S. defaults, Nadler argues that all assets will take a hit of 20%-40% at the least. "If prices fall below $1,480 then it is turning into a bear market."
With gold prices high but not skyrocketing it seems like investors are dabbling into gold as protection but staying clear of prepping for ultimate disaster. The snag, of course, is what happens if lightning does strike and the U.S. loses its triple A credit rating? Will scared investors dump all assets or make a beeline for gold?
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