Gold Could Bounce Next Week

After spending the first two weeks of the year weaker, gold prices could be ready for a bounce, especially if the markets return to worrying about European debt.

February gold futures prices settled at $1,360.50 an ounce on the Comex division of the New York Mercantile Exchange, down 0.6% on the week. March silver futures settled at $28.32 an ounce, a fall of 1.2% on the week.

Several successful bond auctions this week by economically shaky southern European countries—Portugal, Spain and Italy—temporarily eased some of the fears about sovereign debt among peripheral nations. That took away some of the safe-haven demand for gold, said Adam Klopfenstein, senior market strategist with Lind-Waldock. Further asset allocation as investors finished rebalancing commodity indexes also caused some movement out of gold.

China's central bank announced a rise in the reserve-ratio requirement, due to take effect on Jan. 20, which also pressured prices on Friday.

But once the impact of the Chinese move fades, the market could start worrying again about the longer-term European structural debt problems. This is likely to become a background factor offering support again, Klopfenstein said.

"That's going to give gold more flight-to-quality buzz. I think gold is going to approach $1,400 next week," Klopfenstein said. "Anything from there will be based on market momentum. But I do think we're going to have a strong rally next week."

He described this week's European bond auctions as "delaying the inevitable," or further crises.

"Until we get a clear resolution of the European debt situation. . .that will be in the backdrop," Klopfenstein said. "And as long as that is the case, gold will be well supported. I don't expect a major drop below $1,350."