Gold Hits Technical Resistance

As the dollar rallies, the metal finds tough slogging above $600.
Author:
Publish date:

Updated from 11:15 a.m. EDT

Seemingly rock-solid technical resistance and a stronger dollar pushed gold prices back down Friday.

Chart watchers say they spy a doubly strong barrier that will need to be broken before gold prices can move meaningfully above the psychologically vital $600-an-ounce level.

"Several rallies

were held in check by a downward sloping trend line," which rests at about $605 this week, says Gary Dorsch, editor of the

Global Money Trends

newsletter. In addition, key horizontal resistance, also at $605, lends "maximum importance" to this particular chart point, he says.

If gold prices somehow do manage to surmount the chart obstacle, then a rapid upswing seems likely: "A breakout above $605 could signal further gains to $650," Dorsch says.

Unable to break higher, prices for December delivery of bullion slipped by $6.10 to close at $596.40 an ounce on the Comex division of the New York Mercantile Exchange. The exchange-traded funds that hold physical gold,

streetTracks Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

, were also losing about 1% recently. And the Philadelphia Gold and Silver Sector Index was slipping 1.7%, dragged under by the weaker metal prices.

On the fundamental side, news from the Economic Cycle Research Institute continues to show a modestly slowing economy. The think tank's Weekly Leading Index logged a drop of 0.5% for the period ending Oct. 13, marking the 12th straight decline for the indicator. The preceding period showed a fall of 0.8%, revised upward from a previously reported 1% decline.

Although the changes in the WLI are not dramatic, at the margin they do point to a slightly lower chance of a recession, says Lakshman Achuthan, managing director at ECRI. "Predicting a recession is a very complex thing that you can't capture in a straight-line equation, however tempting it might be to do so."

The increased likelihood of a so-called soft landing for the economy helped boost the dollar, which was recently buying 118.765 yen, up from to 118.16 yen Thursday. The greenback was also up vs. the euro, which was trading at $1.2617 compared with $1.2628 a day earlier. Gold prices tend to move inversely with changes in the price of the U.S. currency.

Among the miners,

Barrick Gold

(ABX)

extended its offer to acquire all outstanding shares of Pioneer Metals to Nov. 9. The previous deadline expired Thursday.

In base metals, Comex December copper contracts closed down 4.75 cents at $3.462 a pound.

A modest surplus of metal in the physical market will likely bring prices for the red metal down to $2.72 a pound in 2007, according to a new forecast from London-based Natexis Commodity Markets. The firm predicts prices will average $3.06 a pound in 2006.

Elsewhere, brokerage Canaccord Adams initiated coverage of

Teck Cominco

(TCK)

with a buy rating. The stock was trading up 3% recently.

In ferrous metals, Prudential upped its stock price target on steel smelter

Nucor

(NUE) - Get Report

to $40 a share from $35, but reiterated its underweight rating. On Thursday, Nucor reported stronger-than-expected third-quarter earnings targets but said fourth-quarter shipments will be hit by inventory issues.