By Debbie Carlson of Kitco News
(Kitco News) - Gold and silver hit milestones this week, with gold breaching $1,300 an ounce and silver a 30-year high, investor sentiment remains positive toward to the precious metals.

Silver is outpacing gold and has for the week and so far for the month. Looking at the futures on the Comex division of the New York Mercantile Exchange, December silver is up 10.1% on the month and closed the week with a 2.8% rise, settling at $21.399. Gold, meanwhile, is up 3.8% this month and gained 1.6% this week, settling at $1,298.10.

Spurred by investment buying and an accommodating U.S. Federal Reserve, both metals rallied on their roles as alternative currencies. Reports of central bank buying of gold and producer de-hedging of gold also lent support. And in the long-term, most market watchers believe both of these precious metals have an upward trajectory. In the short-term the markets could see some retrenchment on profit-taking, the markets are well-supported underneath current values.

The possibility of further quantitative easing by the Fed has some market watchers raising their targets for gold. Credit Agricole in a research note from Friday has boosted its average price for gold by December to $1,305 from $1,268. “Easy money policy/ample liquidity is likely to be supportive for the commodities sector as a whole. This would be especially the case for gold. Gold prices would likely move higher in this scenario as some investors would fear competitive debasement of fiat currencies and we have adjusted our outlook accordingly,” said Robin Bhar, senior metals analyst at Credit Agricole.

Barclays said gold will continue to make more highs as investor fears about the economy recovery continue and until those are put to rest and interest rates begin to rise, it favors gold. They are more cautious on silver. While prices for the grey metal “have closed above $21/oz for the first time since October 1980 (it continues) to ride upon gold’s coattails rather than finding support from its own fundamentals,” the bank said.

This week’s price activity came without the help of Asian investors, many of whom were celebrating holidays. The return of these participants could alter the look of the market as they return to be greeted by higher prices across the board.

Charles Nedoss, senior market strategists with Olympus Futures, said he expects gold to continue to trade around $1,300. “It’s really a big number for this market,” he said.

Analysts said gold market action could be a little sluggish early in the week as many market participants will be in Berlin for the London Bullion Market Association meeting.

For silver, Nedoss said holding $21 an ounce is “very important.” For him, the next upside target for silver is $21.50 for the December Comex contract. He said downside for silver could be limited as prices are well-supported underneath current prices.

Adrian Day, principal of Adrian Day Asset Management, said he’s less concerned about the day-to-day action of precious metals than the long-term picture, which he said is positive. As long as gold is seen as an alternative currency there’s support for prices.
“There’s no reason to sell it,” he said.

That said, he would like to wait for gold to pull back before adding to any positions. “Gold does correct from time to time and we have to be prepared for it to pullback, but my question is, ‘what will cause it?’,” he said.

Seasonally gold corrects in October and November and if it does that’s when investors might want to add to positions, but he warns that corrections in gold could be “short and shallow.”

He said he was initially concerned about the amount of gold that has been amassed in exchange-traded funds, but he said there’s been little sizable outflow from those even during large turn downs in price. While ETFs make it easy to own gold, it makes it easy to sell it, he pointed out.

Day said he’s also positive for silver, for the same reasons he is for gold, but added that gold is a little safer to own for someone who is buying because of fiat currency reasons since it’s less volatile. The thinness of the market makes it more susceptible to a break.

Here, too, he would like to own silver during a pullback.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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