From the May 01, 2011 issue of Futures Magazine • Subscribe!

Metals outlook: Are the best years past?

He goes on to say that it is the Federal Reserve’s ultra-accommodative monetary stance that really propelled gold prices. Phil Streible, senior market strategist at Lind Waldock, agrees and says to watch for the exit strategy. "When the Fed’s quantitative easing program ends in June, then people will start to question [if we’re near the top] and we may see a soft patch in the gold market. We may not see a correction then, but by the third quarter we will," he says.

Looking to the rest of 2011, watch the Fed. "I’d watch the Fed’s target interest rates and if those go up, it should be bearish for metals." As a leading indicator, Winmill says to watch the Personal Consumption Expenditure (PCE) Index, because that is what the Fed watches to gauge inflation (see "Another inflation gauge").

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Winmill doesn’t expect a change by year-end and is forecasting $1,600 gold prices by then. If things really start to improve and the Fed raises rates, he says gold could drop to $800. Streible is even more bullish for gold with a year-end target of $1,650. Even if the Fed begins to tighten, he expects a short-term correction but then a resumption of the upward trend.

Nadler is much more bearish. "Even if you just stall on investment demand, we could see $200 in losses in just a couple of months. If there is a little bit of liquidation, we could lose as much as $350," he says. While he pegs support levels at $1,400, $1,380 and $1,150, he expects a pull-back to materialize later this year that could see gold fall to $900. "Ned Schmidt, another industry veteran, says to buy gold 1) On an intermediate buy-signal, 2) when gold is under $1,000 or 3) if the year-on-year change is 0% or less, depending on what your base currency is," Nadler says.

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