Gold move above $700 may be hard to sustain now

Gold bulls are watching every economic number to see if the market could return to $700 an ounce but the calm in the US economy may not help sustain such prices, a fund manager invested in precious metals said.
"I think there's a false sense of complacency in a sense, but I can also see why gold is in a trading range," said Michael Cuggino, president and chief executive of Pacific Heights Asset Management LLC, which runs the $1 billion Permanent Portfolio Family of Funds.
Cuggino said there had been no catalyst in recent months for a break-out in gold, whose futures scaled $700 in February and April but have otherwise been locked in a $640-$665 range since January 21.
"I think we've got things under control at the moment," Cuggino told Reuters in an interview Thursday. "If you look at the US economy, it's growing despite oil prices being $40 higher than what they were four years back. If you look at the US Federal Reserve, they appear to be engaging in rational behaviour with perspective to short-term interest rates."
"We know what the geopolitical risks are and they've been dealt with. There's nothing new out there." Cuggino said investors typically bought gold to hedge against inflation and the precious metal appreciated when markets thought governments were not doing enough to deal with the weakening value of money or rising prices of goods.
He said that was the premise in April last year when uncertainties over the economic policies of new Fed Chairman Ben Bernanke helped push gold futures on the New York Mercantile Exchange's COMEX division to 26-year highs of $730.
"Then, people were scratching their heads with Bernanke and what he was doing. Most people assumed that a pause meant that a rate cut was coming in a month or two. I think now the markets have taken him at his word. Pause means pause."
The Federal Reserve is expected to hold short-term US interest rates steady at 5.25 percent when it meets next week. But investors think a rate hike is inevitable in the future due to a surge in money supply since the Fed ended a two-year rate tightening in June last year.
Central banks from Europe to Asia have also raised interest rates or considered doing so over the last two years. "The market will react if it senses that central banks are behaving irrationally or there's an event that comes out of left field that shakes everybody up," said Cuggino, who has allocated 25 percent of his fund to precious metals. "Those are the things that I think are going be the next legs that will drive gold up."