Gold prices are likely to be driven by news events (the US debt ceiling) next week. Market watchers also say expiration of the August options on July 26, with 25,000 contracts — calls and puts combined — sitting at the $1,600 strike can impact the direction of trade.
Larry Young, senior portfolio manager with Covenant Trading thinks gold will see higher prices next week, possibly pushing to $1,640 level. A resolution to the debt issue could dent gold’s rise, but said the downside is likely be moderate, around $1,550.
August gold futures on the Comex division of the New York Mercantile Exchange on Friday settled at $1,601.50, up 0.72 per cent on the week. The contract set an all-time nominal high price of $1,610.70. We had indicated strong outlook for the gold and crossover $1,600 level. For next week, gold is expected to consolidate below $1,600, and see strong support around $1,575. The upside resistance is expected to come around $1,625 an ounce. In the Kitco News Gold Survey, of the 19 participants, 11 expect prices to fall and eight see an upside.
The August futures saw a significant buy-side volume below $1,595 and, hence, gold is expected to get strong support below that level. However, strong resistance is expected to come above $1,601 as the August futures saw 62 per cent volume above that level, mostly accounting for sell-side trades. The market saw a double distribution day on Friday as other time-frame traders entered the market when the prices were below value, but the sellers who were waiting for news event entered the market when they noticed uncertainty to raise the US debt ceiling.
The market picture chart shows an upside resistance at $1,622 and strong support below $1,575. The traders booked profit in the $1,600-strike call options (August series) on account of expiration of contracts next week. However, buying of put options was seen in the 1,580-1,600-strike put options to protect long positions in the gold August futures. Technical resistance for gold is seen at $1,631.90 and support at $1,559.90.