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As gold prices ease, market split on near-term direction

Gold prices are likely to hold to just under $1,800 (U.S.) an ounce in coming days as there are few catalysts on the horizon to wake the metal up from its slumber. Participants in the trade suggest next week could be similar to the range-bound activity of the past five days.

Prices were down on the day and the week. The most-active December gold contract on the Comex division of the Nymex settled at $1,759.70 an ounce, down 1.19 per cent on the week. December silver settled at $33.669 an ounce, down 2.61 per cent on the week.

In the Kitco News gold survey, out of 33 participants, 21 responded this week. Of those 21 participants, 10 see prices up, while nine see prices down, and two are neutral or see prices moving sideways. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

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Prices drifted lower on Friday in fairly light volume, with selling ahead of the weekend dominant. Gold "clearly lacks the necessary impetus to make further gains just now, the debt crisis in the euro zone having not escalated any further and the supply risks in South Africa already being largely priced in," said analysts at Commerzbank.

They also noted that after scoring some strong inflows recently, activity in the exchange-traded funds has slowed, with a "wait and see attitude" becoming more evident among ETF buyers, the bank said. "There is thus a growing risk of short-term oriented financial investors starting to take profits, which would put prices under pressure," the bank said.

However, Commerzbank said they don't see significant losses likely for gold because of the global central banks' ultra-loose monetary policy.

Bob Haberkon, senior commodities broker, RJO Futures, said he's neutral on gold next week, expecting it to hold in the current range between $1,760 and $1,780. "I think we'll see what we saw this week, which is just some more sloshing around. I'm going to keep an eye on what comes out of Europe," he said.

The next few weeks might be quiet ones overall, he said, as the markets bide time ahead of the U.S. presidential elections in early November. "After the elections the market will focus on the fiscal cliff and debt ceiling and that could be a really good time for metals," he said.

Edel Tully, precious metals strategist at UBS, said while speculative buying and ETF inflows have supported gold to current levels, she is watching physical demand, which generally has been lagging with gold prices near records in most emerging market currencies.

"The future path of (emerging market) currencies versus the dollar will therefore be an important factor for returning gold demand," she said.

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She noted the recent strengthening of the Indian rupee has helped to revive physical buying there.

"This currency strength is occurring at the right time for gold, with the wedding season intensifying from late October and followed by Diwali from Nov. 13. So long as the rupee doesn't weaken materially, gold demand should pick up further in the coming weeks, and this will be further helped by low inventory," she said, although it's not likely to make up for the poor sales earlier in the year.

Mr. Tully said gold prices can appreciate further, but she does offer some factors that could be stumbling blocks this quarter for the yellow metal, including a break in equity prices, weakness in the euro, the U.S. presidential election, improved U.S. economic data and a resolution to the fiscal cliff.

Looking toward next week, Chinese data will help to set the tone early. Over the weekend, September trade data will be released, along with the consumer and producer price indexes. Analysts at Brown Brothers Harriman said the worries about inflation in China should be easing.

"Price pressures should not be a concern now, not with deflation seen at the PPI level and disinflation at the CPI level…. It's worth noting that PBOC (People's Bank of China) has been letting the yuan spot appreciate recently, and is up 0.3 per cent so far in the fourth quarter.

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