News and gold strategy from chansour

Gold Upward Momentum Continues for Fourth Straight Session

Gold Ended Flat As Dollar Pared its Gains Ahead of G20 Finance Ministers Meeting

25 Oct 2010 1st resistance 2nd resistance 3rd resistance
Today’s resistance US$ 1332 1337 1346
1st support 2nd support 3rd support
Today’s support US$ 1319 1310 1305
Today’s pivot point US$ 1323

The Day’s Story:
Spot Gold ended marginally higher on Friday in a rather quiet session after sharp declines a day earlier and ended lower for the first time in 12 weeks. Gold fell further as dollar strengthened earlier during the session but recovered as dollar gave away those gains. Gold has been tracking dollar movement for last 12 weeks now and moving opposite direction to greenback although much of that move is for upside due to dollar weakness. Gold has suffered some chart damage this week as it came off its record high and fell to its lowest level in 2 weeks at the back of some profit taking and short covering rally in U.S dollar. Despite gold’s 3.3% weekly loss analysts expect a shallow correction and believe precious metal outlook is still bullish in medium to long term as market awaits FED’s meeting in November when they are expecting an announcement for fresh round of monetary easing.

Major U.S. stock indices were mixed at the end of Friday session with Dow edging lower while S&P500 and NASDAQ both added further to their gains. Traders focused on the latest earnings reports on Friday and despite most of the companies have topped analysts’ forecast traders remain concerned about currencies and the weak economic backdrop. The Dow's decline on Friday was led by AMEX and Verizon Communications. Both reported better-than-expected earnings, but AMEX fell on concerns that it is seeing weak demand for new loans, and Verizon dropped on disappointment over slowing wireless subscriber growth. Market however, was reluctant to pick a direction as traders were waiting the outcome of G20 meeting in South Korea regarding currencies valuation what’s been labeled as “Currency War”.

U.S dollar ended flat on Friday after spending most of the day in green territory but headed lower in the final hours and that’s what helped gold erased its earlier losses. The dollar was on track to snap a five-week losing streak against major currencies as traders took profits ahead of possible news from the G20 meeting and the euro repeatedly ran into technical resistance above $1.40. The correlation between the metal and the dollar has tightened to a negative 0.77, near its closest link this year, Reuters data showed. In other outside markets, Crude Oil rose significantly while other precious metal had a mixed day with Silver retreating while Platinum

and Palladium enjoyed modest gains.

Over the weekend Group of 20 finance chiefs in South Korea sought to calm trade frictions that threaten the world economy by pledging to avoid weakening their currencies to boost exports and to let markets increasingly set foreign-exchange values.
“The terms of the currency policy are so vague and broad that they can be interpreted into different meanings by each country as well as market players,” said Oh Suk Tae, an economist at SC First Bank Korea Ltd. in Seoul. “I’m not sure whether the currency war is over. We need to see actions in line with the verbal vows.”
With such an outcome gold direction for this week will be determined depending if traders think that Finance Ministers and Central bankers of World 20 largest nations have done enough to stabilize currency market fluctuation. Commenting on FED’s plan for a fresh round of QE, German finance minister Rainer Bruederle said “It’s the wrong way to try to prevent or solve problems by adding more liquidity,” “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”

Gold started its Friday session in a quiet mode but stayed in positive territory after a day of losses during Asian session. Gold came under selling pressure as markets in Europe started their trading day and fell to its intraday low of $1314.9 an ounce during early hours of European trade. Gold however made a comeback and pare all its losses during later part of European and early U.S session as dollar gave away its gains. Gold managed to close just above its previous close of $1225.5 an ounce at $1227.8 an ounce for the day.

Other Metals:
Silver futures for December delivery closed down 2.0 cent to $23.12 an ounce on Friday.
Platinum futures for January delivery rose by $1.70 to $1,675.10 an ounce on NYMEX.
Palladium futures for December delivery rose by $4.80 to $591.10 an ounce.
December N.Y. Copper closed up 2 cents $3.80 a pound on Friday.

Gold (News and Views):
December Comex gold closed down $0.50 at $1,325.10 an ounce on Friday.
The London P.M. gold fixing was $1,322.50 on Friday compared to its previous P.M fixing $1,343.50.
The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose 17 tons to 1304.342 tons on October 15.
The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 0.06 to 77.39 on Friday.
Crude Oil for October delivery rose by $1.13 to settle at $81.91 on Friday on New York Mercantile Exchange.
Gold hit its true peak on Jan. 21, 1980, when it rose to $825.50 an ounce. Adjusted for inflation in 1980 dollars, that translates to an all-time record of $2,184.08 an ounce, in 2010 dollars.
Good physical demand from traditional bullion-buying centers such as India is strengthening as prices descend. Dealers in India reported they were continuing to stock up for forthcoming festivals, including

the Hindu festival of Diwali, a major gold-buying events, as prices corrected this week.

Factors Affecting Gold Price Yesterday:
Although gold prices are down on the week and could close lower on the week for the first time in six weeks, Commerzbank notes the drop in price has not come with heavy selling out of the gold exchange traded funds. They speculate it is short-term buyers who have left market instead. “It is remarkable that the price slump this week was accompanied by only low ETF outflows. This implies that speculative financial investors have taken profits. The CFTC statistics on market positioning, published after close of trading this evening, will shed some light on this. That said, the statistics only include the data up to the end of Tuesday,” the bank says.

Investors seemed sidelined and trading was “quiet,” allowing some of Thursday’s weakness to follow through, said HSBC analyst Jim Steel.
For next week, “it’s possible that we give up a little bit more, but nothing significant,” he added.

Standard Chartered analyst Daniel Smith said the dollar has been a very important driver and gold could see more weakness in the short term.
"I think the price has run up too fast and we're just going through a period of consolidation now," Smith said.

"With risk appetite and investor confidence showing signs of returning, there is the risk of further profit taking in both gold and silver; however with background dollar weakness lurking, investor concerns about the long-term inflationary implications of QE (quantitative easing) and physical demand at its seasonally strongest, we expect dips to remain well supported and viewed as a buying opportunity," FastMarkets.com research analyst James Moore said in a daily report.

In a daily report, BGC Financial technical strategist Roger Volz said gold has moved into the beginning of a 21 to 55 day corrective phase below $1,346 with its next downside continuation line at $1,310.

Gold Future Outlook:
Rich DeFalco, president of West Cooper Asset Management, said it’s likely gold will see a more choppy trade going into next week and the next few weeks because of the upcoming Fed meeting and the U.S. mid-term elections. Stronger equities – which have given gold support up until this week – could continue next week as the second batch of corporate earnings is released. Earnings have been relatively healthy so far.
“Right now I see gold fluctuating. People say if it breaks $1,300 it could go to $1,250 and if gets back above $1,350 it could go to $1,450. To me, though it’s still in a trading range. In the short-term, I think the downside is limited,” DeFalco said.

GoldCore notes with gold prices down 3% in dollar terms on the week, the metal could have its first weekly lower close in six weeks. It’s still up for debate whether the break will spur a deeper correction and consolidation or whether it is a short correction and gold will rebound. “Recent years have seen many

corrections which have all been swift but shallow and this may be the case again,” Goldcore said. The firm puts support is at $1,300/oz and at the previous resistance and 100 day moving average between $1,248 and $1,260. A 10% correction from the recent nominal high would put gold at $1,242. “Ordinarily, gold would correct back to these levels but this is no ordinary market and with QE2 set to be embarked on and physical demand from Asia and internationally and from many large creditor nation central banks, gold could surprise to the upside as it has done in recent weeks,” they said.

Ed Meir, analyst at MF Global said, for the short-term it seems commodities in general are pulling back significantly whenever the dollar rises, even modestly. Still, he said, the strategy to sell the dollar and buy dips in commodities will remain; at least until the Federal Reserve meeting in early November is completed.
Analysts at BNP Paribas have a little more favorable outlook toward the buck. They said with the Fed taking a less aggressive approach to quantitative easing, it allows more negotiations at the G-20 meeting and an agreement on currencies. They suggest if there is a favorable outcome from the Seoul show, the dollar could bounce versus the euro and British pound. They add currencies that have rallied because of “expectations of increased liquidity are now likely to become increasingly vulnerable to at least a corrective pullback.”

Technical Analysis:
Last week price action has caused some damage for gold on charts. Gold price is now sitting below Bollinger middle band after flirting with upper band for last many weeks. We have to see if middle band provides enough resistance to push the price below towards lower band.
RSI has finally broken below oversold levels last week and sitting at 54 level, suggesting further losses may be on the cards before a rebound.
Slow Stochastics which gave us many false signals in last few weeks have finally headed lower and is now close to overbought conditions.
MACD study which had supported the price rise so far has finally given away and has crossed to the downside suggesting a trend reversal for intermediate term.
Although above indicators are painting a similar picture pointing further correction, keep an eye on dollar-gold inverse correlation which has been close to its strongest level in a year and any news causing further weakness in dollar will benefit gold to head towards its all time high.
Next Resistance lies at $1340-42 and then at $1350 level.
Short term Support is sitting at $316-18 level and then 1308-10.

Daily Gold and Silver Expected Range:
Gold: US$1310- $1348
Silver: US$22.82 - $23.80