News and gold strategy

Gold Upward Momentum Continues for Fourth Straight Session

Gold Ended with Moderate Gains but Well Off its Session High as Dollar Continued to Slide

26 Oct 2010 1st resistance 2nd resistance 3rd resistance
Today’s resistance US$ 1350 1361 1373
1st support 2nd support 3rd support
Today’s support US$ 1327 1315 1305
Today’s pivot point US$ 1338

The Day’s Story:
Spot Gold rebounded on Monday after week of losses as G20 meeting failed to come up with a concrete decision over currency fluctuation. Gold was also boosted by bargain hunters as they benefited from dip in prices and U.S dollar weakness after last week’s gains. Gold was also favored as chances of QE2 are becoming more and more imminent in FED’s next meeting soon after November congressional elections according to market analysts although some may argue that it is going to be a gradual process unlike previous QE and that may support U.S dollar. The other argument is that most of it has already been factored in gold prices which means consolidation at current levels or further correction in coming weeks.

Major U.S. stock indices ended moderately higher extending the three weeks gains as stronger than expected corporation earnings continued to provide traders a reason to buy stocks. The other main driving forces behind the rise were weakening dollar boosting materials and industrial stocks and hopes for fresh round of monetary easing. The biggest economic news of the day was a surprise 10% jump in existing home sale, its highest in 28 years which capped precious metal gains as improved economic outlook reduces the safe haven demand for assets and pushed price below $1340 level. Gold quickly recovered some of its lost ground as Investors said the better-than-expected data did little to diminish expectations that the central bank will announce a new round of purchasing Treasuries, or quantitative easing. European stocks also extended their gains on improved economic outlook.

U.S dollar was the biggest loser on the day as it came under severe selling pressure right from the start as G20 Finance Ministers and Central bankers meeting failed to deliver any conclusive outcome for global currencies and did little to calm investors’ fears over currency devaluation which has helped gold peaking several times to uncharted territory in last 12 weeks. Dollar took a breather with positive housing numbers but could not land into positive territory due to strong bearish sentiments hovering the greenback at the moment. For now market seems to have been obsessed by fresh monetary easing measures and that’s the only thing you will hear everybody talking about. What comes to dollar rescue remains to be seen but a short covering rally from last

week may have some steam left in it and dollar may find some support at these levels which could trigger further correction in bullion prices due to their strong inverse correlation.

Gold started its Monday session with gains and continued to climb throughout Asian trading hours. Gold went quiet during later part of the Asian trading session but fresh round of buying pressure at the start of European session lifted the prices above $1340 level, peaking to its intraday high of $1349 an ounce during early EU trading hours. Gold however pared some of its gains and traded in a narrow trading range during rest of the European session until U.S housing data was released soon after U.S markets started their trading day. Strong housing numbers pushed prices close to $1330 level as an initial reaction to numbers but gold managed to regain most of its ground towards the end of the session. Gold finished its day with1% gains at $1339.5 an ounce gaining some of its 3.4%weekly losses back.

Other Metals:
Silver futures for December delivery closed up 43.0 cent to $23.53 an ounce on Monday.
Platinum futures for January delivery rose by $21.90 to $1,697.00 an ounce on NYMEX.
Palladium futures for December delivery rose by $17.70 to $608.80 an ounce.
December N.Y. Copper closed up 7 cents $3.86 a pound on Monday.

Gold (News and Views):
December Comex gold closed up $13.80 at $1,338.90 an ounce on Monday.
The London P.M. gold fixing was $1,337.50 on Monday compared to its previous P.M fixing $1,322.50.
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 0.26 to 77.13 on Monday.
Crude Oil for October delivery rose by $0.61 to settle at $82.52 on Monday 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.
Money managers have reduced their long positions in gold futures however. They reduced their bets that prices will rise 6% in the week ended Oct. 19, and the long positions are at their lowest since August, the Commerzbank analysts said, citing data from the U.S. Commodity Futures Trading Commission released late Monday.

Factors Affecting Gold Price Yesterday:
The Group of 20 meeting should continue to provide support for gold, says Commerzbank. The metal is sharply higher so far Monday after foreign-exchange market participants took the meeting of finance ministers and central bankers as an OK to keep selling the U.S. currency. “The meeting of G20 finance ministers and head of central banks in South Korea has ended without any real results,” Commerzbank says. “While G20

members have made a commitment to ‘move towards more market-determined exchange rate systems and to refrain from competitive devaluation of currencies,’ a definition of this was not provided. Consequently, differences persist between individual countries as to what constitutes appropriate monetary and currency policy. Gold should therefore stay in investor demand.”

“Certainly, the dollar plays into it,” says Leonard Kaplan, president of Prospector Asset Management. “Certainly oil plays into it.” Some buy stops were likely triggered. “It’s volatile, and I expect more of the same,” Kaplan says.

"The G20's hardened stance towards exchange rates has been has been interpreted as dollar-negative and should now defer further talk of 'currency wars,' and with it the threat of concerted central bank action to stem the downward moves in the dollar and take the heat out of the fast appreciating emerging market currencies," RBC Wealth Management's senior vice president and financial consultant George Gero explained in a report.

“It’s starting to pause for a breather,” said Michael Hewson, a market analyst at CMC Markets in London. “It is looking a little bit stretched at the moment,” even though longer-term prospects are still favorable for gold, he added.

Gold Future Outlook:
Gold and Energy Advisor's James DiGeorgia said though the dollar is under pressure, it looks like it's beginning to consolidate. "There is long-term support at the 76 level. The dollar could consolidate here," he said in a report.
DiGeorgia added that consolidations can remain from one to three months. The driver of the next decline could come when the Fed begins its second round of quantitative easing, anticipated to begin in early November, he said.

It's a very bullish picture for gold," said Carl Firman, analyst at Virtual Metals.
"You have this prospective QE2, dollar weakness, inflation fears," he added. "After Christmas we're looking at possibly $1,400."

In a daily report, EverBank World Markets president Chuck Butler said he was surprised by the sell-off in gold and silver last week because he's been of the view that the widely talked about "currency war" would bolster the metals as they retained wealth and currencies went to zero. "Hmmm. Confusing," Butler said. "But confusion only leads to clarification. So just stick with the diversification plan, and you'll be able to ride out confusion that sets into the markets every now and then!"

“At current prices near $1,350, demand will likely pullback a bit, but should remain healthy” before the Diwali festival at the beginning of next month, Edel Tully, an analyst at UBS in London, said today in a report. “Physical demand at the levels we saw on Friday is usually an indicator that gold’s price trough is very near.”

Technical Analysis:
From an important technical perspective, December Comex gold futures on Monday saw a corrective upside bounce from last week's solid losses. Some near-term technical damage was inflicted last week as a 2.5-month-old uptrend on the daily bar chart was at least temporarily negated and prices produced a bearish weekly low close last Monday.
Bulls now need to show some good price strength this week to repair the near-term chart damage that was inflicted last week. Gold bulls do still have the overall near-term and longer-term technical advantage.
Bulls' next near-term upside technical objective is to produce a close December gold above solid technical resistance at $1,366.00.
Bears' next near-term downside price objective is closing prices below major psychological support at $1,300.00.
First resistance is seen at Monday's high of $1,349.50 and then at $1,360.00.
Support is seen at Monday's low of $1,329.30 and then at $1,325.00.
Wyckoff's Market Rating: 7.0.

Daily Gold and Silver Expected Range:
Gold: US$1318- $1358
Silver: US$23.05 - $24.10