Gold News Today May 17 2011, Spot gold was higher in Europe Market

gold was higher in Europe Tuesday, but industry participants are cautious on the yellow metal's near-term outlook.

At mid morning, the spot price of gold was $1,494.58 a troy ounce, up $5.38, or 0.4%, on the day. The market was supported by a stronger euro, which makes gold, denominated in dollars, less expensive for holders of other currencies. Spot silver was 1.8% higher at $34.170/oz, while base metals and crude futures also traded up.

"We want to remain bullish of gold, but we are technically fearful that spot gold is edging toward the edge of a precipice and we urge caution at the moment," said independent financial-markets commentator Dennis Gartman.

Mr. Gartman said the market's trading range is becoming increasingly constricted and that the "battle between the bullish and bearish forces, like the trench warfare of World War I, is growing more and more severe."

"One side shall soon vanquish the other, and we fear that for the moment it may be that the bears triumph," he said.

Analysts and traders are eyeing support levels around $1,488 to $1,492 per ounce, and say that as long as the market remains above this level it may be able to consolidate higher.

A break below, however, could trigger a rush of selling and drive prices back down to the low $1,400s, they said.

"We expect near-term volatility in the gold price with the potential for a pullback due to a general shift away from risky assets, potential seasonal weakness, and investor fatigue after a strong rally to $1,550/oz," RBC Capital Markets said in a client note. The gold market recorded a record high at $1,576.52 per ounce on May 2.

News that billionaire investor George Soros's hedge fund sharply lowered its stake in several gold investments may also cap any rise in the short-term, prompting investors to view rallies as an opportunity to sell, analysts said.

Mr. Soros lowered his holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, by 4.7 million shares to just 49,400 shares at March 31, according to a filing with the Securities and Exchange Commission late Monday. The fund also cut its stake in miner NovaGold Resources Inc. by 9.4 million shares.

However, RBC suggested there is the potential for new record highs in the gold market, forecasting a trading range of between $1,300 per ounce and $1,600 per ounce over the remainder of the year.

The bank said that while it expects volatility in the market, the price remains well supported due to ongoing euro-zone sovereign debt concerns, continued low real interest rates in the U.S. and strong physical demand from emerging markets, driven by inflation concerns and increasing wealth. Buying interest from central banks and speculators should also help to create a price floor, it said.

Spot platinum was up 1% at $1,769.20 per ounce, while spot palladium had also risen 1%, to $715.50 per ounce.