Spot gold is at $1,163 range

By Debbie Carlson of Kitco News
Chicago -- (Kitco News) --Gold prices have stabilized after Tuesday's $25 break, but the near-term trend has changed to sideways to weaker.

Spot gold is up $1.80 at $1,163.40 an ounce at 13:53 EDT Wednesday.

Given gold is in its seasonal slow period and with the renewed appetite for riskier assets, prices are likely to weaken for the next several weeks, barring unforeseen circumstances.
Tuesday's break was considered technical in nature.

On the Comex division of the New York Mercantile Exchange, options expiry had an influence, as those exiting positions sold futures. First notice day for August futures is Friday and traders are rolling positions into October or December contracts.

The speculative and investment crowd drove gold to its all-time highs in June and are likely behind the break. They follow technical charts and other psychological milestones when placing orders. Commerzbank said in its Wednesday commentary that gold has lost 8.5% of its value versus its June high. In euro terms gold’s “price fell below the psychologically important mark of 900 euros per troy ounce for the first time since the beginning of May and hit 892 euros, the lowest level in more than 12 weeks,” they wrote.

The bank also said the SPDR Gold Trust, the world’s largest exchange-traded funds "reported outflows of roughly 1 metric ton again yesterday. Yet, in view of the clear price decrease, outflows have stayed within reasonable limits with just under 20 metric tons since the beginning of the month,” they said.

It also predicts Friday's Commodity Futures Trading Commission's weekly commitment of traders data - which will include Tuesday's session – “will probably shed light on this on Friday,” it said.

Ken Morrison, founder and editor of the online newsletter Morrison on the Markets, who has talked about the possibility of a near-term gold break for three weeks now, said "gold has been losing momentum steadily and, (Tuesday), was forced to find a price that induced buyers. It may try to stabilize and may even bounce by the end of the week, but the trend remains negative."

Even though the ETF outflows are only 20 metric tons, investors who bought this year are losing money, he said. Whether they continue to hold remains to be seen.

Tuesday’s break took out near-term support around the $1,180-1,175 area and that has changed some investor views. Dennis Gartman, the editor of The Gartman Report, said he is now on the sidelines regarding gold. “Were we forced to take a trading position we’d sell gold short, for the longs now have several months of strong overhead resistance to overcome before they regain the upper hand,’ he wrote on Wednesday.

While gold’s near-term trajectory is down, market watchers aren’t looking for a collapse in prices because of the long-term support: huge government debt and possibility of inflation if economies are really on the rebound, among other reasons.

Morrison said after every new high gold has corrected about 15%. A 15% correction this time would bring gold to $1,057.

Commerzbank said physical buying in the mid-to-long-term should pick up because of the break.

Barclays Capital concurred. “Indian physical demand has shown signs of life as prices dipped below $1200/oz, but during the seasonally slow summer months physical buying is likely to be subdued but we would expect interest to return upon price dips. Stronger physical interest was seen earlier in the year when prices were trading around $1100/oz,” they said in a comment Wednesday.

By Debbie Carlson, contributing to Kitco News;dcarlson@kitco.com