News and gold strategy

Gold Flat as Dollar Rebound Capped Gains

27 Oct 2010 1st resistance 2nd resistance 3rd resistance
Today’s resistance US$ 1346 1353 1362
1st support 2nd support 3rd support
Today’s support US$ 1331 1322 1315
Today’s pivot point US$ 1337

The Day’s Story:
Spot Gold ended flat on Tuesday after falling down by more than 1% earlier during the session. Gold came under pressure at the back of strong rebound in U.S dollar which rose against basket of six major currencies. Gold recovered from its earlier losses as bargain hunters once again came into rescue and took benefit of lower prices maintaining “buy at dip” psychology. Gold which has risen to record level for 17 times in last seven weeks has been in consolidation as market awaits result of FED’s next week meeting and details of expected fresh round of Quantitative Easing. The speculation has caused a significant downside pressure for Greenback as more money in circulation will depreciate the currency value boosting the demand for alternative assets such as gold. Most of QE2 news has already been priced in the bullion and many analysts expect U.S dollar to stabilize in near future.

Major U.S. stock indices ended flat on Tuesday as stronger than expected 3rd quarter results from Ford Motors and Coach along with better than expected consumer confidence numbers outweighed the losses in Material sector. Before the market open, it was reported that the S&P/Case-Shiller 20-city August home price index increased by 1.7% from August 2009, which was below the 2.1% growth predicted by economists. The market trading at six-month highs moved sideways, is looking ahead to next week’s heavy schedule of long-awaited events: FED meeting in which the central bank is expected to announce a fresh round of monetary easing measures, midterm congressional elections and October Non-Farm payroll report. Recently some positive economic data has surprised the traders and improved economic outlook has calmed fears of double dip recession. Much depends on next week’s Job report because market argues despite better economic data; job market has been on the slide. Unless labour market improves economy cannot be considered on the path to a sustained recovery. If economy starts showing true signs of improvement, demand for safe haven assets takes a hit and gold will be its biggest victim as economic stability takes the shine away from precious metal. Main European markets edged lower, weighed by disappointment with earnings from Swiss bank UBS AG.

U.S dollar stole the show in yesterday’s trading as it bounced back from moderate losses a day earlier and rose

by 0.7% against basket of six major currencies. A stronger dollar is usually a negative for commodities such as gold because it makes them more expensive to holders of other currencies, diminishing their investment appeal. Gold-dollar inverse correlation was slightly damaged yesterday as a significant rise in greenback could not hurt gold prices although it did put a lid on bullion’s gains. Gold recovery was mainly due to “Buy at Dip” mentality as bargain hunters once again came into play. According to Newswire report physical demand for bullion remains strong in Asian countries which has also limited any downside in gold prices. As mentioned above, analysts believe greenback may stabilize in near term and that could trigger a deep correction in gold prices due to negative correlation between the two which has been at its strongest level in a year. We will have a clear picture of gold’s next move after FED’s next meeting. Until then expect a sideways movement with prices trading mainly in the range of 1300-1360.

Gold price started its Tuesday session with a spike to intraday high of $1343.5 an ounce but quickly gave away its slight gains and headed down towards south. Gold remained under selling pressure throughout Asian session and continued to extend losses during earlier European session. Gold fell to its intraday low of $1327.9 an ounce just before markets in North America started their trading day. Bullion found some support in early hours of U.S session and pared almost all its losses in the final session of the day. Gold finished its day a tad above its previous close of $1339.5 at $1340.1 an ounce.

Other Metals:
Silver futures for December delivery closed up 29.0 cent to $23.83 an ounce on Tuesday.
Platinum futures for January delivery rose by $7.00 to $1,704.00 an ounce on NYMEX.
Palladium futures for December delivery rose by $16.65 to $625.45 an ounce.
December N.Y. Copper closed up 1 cent $3.87 a pound on Tuesday.

Gold (News and Views):
December Comex gold closed down $0.30 at $1,338.60 an ounce on Tuesday.
The London P.M. gold fixing was $1,329.50 on Tuesday compared to its previous P.M fixing $1,337.50.
The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings stood at 1299.177 tons on October 26 unchanged from previous day.
The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.52 to 77.65 on Tuesday.
Crude Oil for October delivery rose by $0.03 to settle at $82.55 on Tuesday 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.
Indian jewelry demand appears to be holding up even with gold at historically high prices, says a research note from Commerzbank. Analysts cite reports from the Bombay Bullion Association saying that imports into the key consuming nation of India could top 40 tons in October and that imports for the full year could

reach last year’s level of 340. “Jewelry demand is evidently accustomed to the higher price level,” Commerzbank says. “Slight drops in prices are being used as buying opportunities even at the current high level.” This is reflected in a strong demand for gold in India in the run-up to the early-November Diwali festival, the bank says.
Gold assets in exchange-traded products fell 1.63 metric tons to 2,096.41 tons yesterday, the seventh straight decline, according to data compiled by Bloomberg from 10 providers.

Factors Affecting Gold Price Yesterday:
A stronger tone in the dollar exerted some pressure on gold and silver in London trading, say analysts with GoldCore. “Physical demand remains robust with buyers continuing to accumulate on the dips. With monetary easing set to continue and indeed deepen in the coming months, this is likely to continue,” GoldCore says.

That gold and other commodities managed to at times move higher on a day the dollar is stronger sent a very powerful message about demand, said Richard Ross, a technical analyst at Auerbach & Grayson in New York.
“There’s general demand for commodities, the story is more than the dollar” even though the U.S. currency remains a critical aspect of commodity price movements, he said.

Frank McGhee, head precious metals trader of Chicago-based Integrated Brokerage Services, said gold's positive turnaround was aided by technical buying as the metal shrugged off a stronger dollar.
"At this point, it's all technicals. Gold had originally gotten back to trade lock-step with the euro/dollar, but that was disconnected after gold did not confirm a breakdown ...," McGhee said.

There was consumer confidence data ... it failed to weaken the dollar," said analyst Eugen Weinberg of Commerzbank. "It is maybe helping a little bit as well -- otherwise gold is vulnerable to further profit taking."

In a daily note, EverBank World Markets president Chuck Butler surmised that Tuesday's dollar gain could be attributable to U.S. traders not being pleased with the G20 results on the premises that the FOMC may not carry out as much quantitative easing as the market has expected. "So why are the U.S. traders thinking this way, when the foreign markets traders and me believe the amount of the QE will be larger than $1 trillion? ... I really don't have an answer for you on why here in the U.S. traders are buying dollars."

Gold Future Outlook:
Newsletter writer Dennis Gartman says gold’s recent correction has taken the metal from “over-extended back toward long-term technical health.” He describes himself as remaining “steadfastly bullish of gold in non-U.S. dollar terms.” He describes silver’s fundamentals are “demonstrably more powerful” than those for gold, but adds that he tends to focus on gold due to silver’s volatility. “But can we imagine why one might wish to be long of silver as well as long of gold? Of course we can, and we shall simply suggest that owning silver in sterling terms is as wise as owning gold in those same terms; the volatility is actually reduced and the trend is perhaps even more clearly defined.”

Goldcore puts chart support for spot gold at $1,317 an ounce, with resistance at $1,348 and $1,385.

"At the moment this (QE) is the most important factor," said Commerzbank's Weinberg. "By now, it should have been priced in to a greater extent. At the moment the market is buying the rumor and I wouldn't be surprised if it sells the fact when it comes."

The gold rally has “gone too far, too fast,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago. “Such breakouts are usually indicative of a market engine that surges forward on its last fumes before eventually exhausting its fuel supply.”

Earlier, gold rose as much as 0.4 percent on bets the greenback will resume a slide, said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.
“Metal traders believe the dollar is going to continue downward, and they’re positioning for the outcome after the Fed meeting,” Lesh said. “The dollar is inherently weak, and so far, we’ve had a very minor corrective bounce. The trend hasn’t changed by any means.”

Technical Analysis (by Jim Wyckoff):
From an important technical perspective, December gold futures closed nearer the session high Tuesday. Bulls need to show some good price strength this week to repair the near-term chart damage that was inflicted last week. 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 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 Tuesday's high of $1,343.80 and then at this week's high of $1,349.50.
Support is seen at Tuesday's low of $1,328.10 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

Chart of the Day (by Phil Smith):
Gold has pulled back a bit from its very overbought condition.
Gold had accelerated away from the uptrend line but then bounced nicely off the Fibonacci Projection target of 1,378 we drew on a while ago. See chart two. The target for this correction is 1,293 as a first stop.

Turnover has come down and now the MACD on the daily has actually crossed to the downside so we could be into a new intermediate trend down.

The rise has, until now, been backed up by the MACD study but the Slow Stochastic broke down badly and
gave us some false signals.

The correlations for gold are actually normalizing at the moment but this may be temporary. Nevertheless the usual negative correlation with the dollar is back in place and the dollar is moving steadily to the downside.

I’m still watching for the beginnings of a large topping pattern at these levels. When the turnover in the market falls there is likely a lot of ‘air’ under this price. Watch the turnover very carefully.