Gold May Turn Down Next Week On Distress Prices Rise Too High

Gold may decline on concern that prices rise too high amid speculation about Federal Reserve asset purchases, a survey found.

Gold for December delivery was up 0.7 percent for this week at $1,335. It reached an all-time high of $1,388.10 on Oct. 14.

Before last week, prices rallied for five weeks as the dollar sank on speculation about further so-called quantitative easing by the Fed. The currency rebounded last week amid speculation that the central bank may expand easing steps gradually, slowing the dollar’s depreciation. Gold usually moves inversely to the greenback.

“The expectation of a gradual introduction of quantitative easing is leading to selling in the gold market on the belief that gold had become overbought.”  “The short-term trend appears to have changed after last week’s lower close.”

Estimates for the amount of Fed asset purchases range from $1 trillion at Bank of America-Merrill Lynch to $2 trillion at Goldman Sachs Group Inc. Economists at both firms agree the Fed will likely start by announcing $500 billion after policy makers’ Nov. 2-3 meeting.

The red bars on the attached chart are derived by subtracting bearish forecasts from bullish estimates, with readings below zero signaling that most respondents expect a decline. The green line shows the gold price. The data shown are as of Oct. 22.

The weekly gold survey that started six years ago has forecast prices accurately in 193 of 334 weeks, or 58 percent of the time.