Another Day, Another Record for Gold - $1400 Just a Whisk Away
08 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1404 | 1413 | 1429 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1380 | 1364 | 1355 |
Today’s pivot point US$ | 1389 |
The Day’s Story:
Gold peaked to another record high on Friday, rising to never seen before level twice in two days and finished the week with 5.5% gains making it its second weekly gain in a row and 13th in last 14 weeks. Gold price was under pressure for most of the day but rallied in final hours of floor trading and finished a whisk away from psychological $1400 level while other commodities and stocks gave away most of their intraday gains. Gold came under selling pressure due to profit taking as a result of stronger than expected jobs numbers painting brighter economic outlook. Dollar reacted positive to jobs numbers and rebounded from its earlier losses. gold soon recovered the lost ground and lifted to uncharted territory once again later in the session as bargain hunters came back into play. Gold’s next week outlook is bullish according to many analysts and more gains are on the cards as long as dollar remains under selling pressure. Gold is up by 29% for the year and well set to post its 10th annual gain.
U.S stocks ended moderately high extending their gains to 2 years high on Friday in the wake of fresh stimulus package. Stocks managed to finish in positive territory but well off their earlier levels. DOW finished the weeks 2.9% higher, while S&P500 posted gains of 3.4% and NASDAQ ended 2.9% higher for the week after a busy week at economic front. Friday jobs report revealed that employment rose by a better than expected 151,000 last month against expected 60,000 and private-sector employers added 159,000 jobs, the Labour Department said. In addition, the September number received a positive revision to show payrolls fell 41,000, less than an original estimate of a 95,000 decline. The unemployment rate, however, remained unchanged at 9.6%, according to the report. Gold’s initial reaction to jobs numbers was a quick profit taking as mentioned in our previous report but bullion was later supported by bullish technical and fundamental factors despite resurging dollar. It is going to be quiet week at economic front as most of the big corporations have come out with their earnings for third quarter which helped stock markets to climb their two years highs. No major economic data is to be released this week and trading in gold will rely heavily on dollar movement in absence of any other economic catalysts.
U.S dollar took a breather as better than expected non-farm payroll report supported the greenback and helped erase some of its previous losses. Inverse correlation between dollar and gold took a hit on Friday as both ended in positive territory. Gold advances came as bargain hunters found the latest dip in prices an opportunity to pile up on their holdings. FED’s latest move to pump more money in the economy is considered to air inflationary pressure and gold will be the main beneficiary in these times as it has a reputation to act as a hedge against inflation. Dollar may bounce back in short term due to its massively oversold status but its fundamental and technical outlook remains bearish which is an underlying bullish factor for gold prices.
Gold price started its Friday session with little movement in any direction after its biggest daily rise in 20 months a d ay earlier. Gold started to head down as Asian session progressed and continued its trend as European markets opened for their trading day. Gold losses were deepened with better than expected Non-Farm Payroll numbers and fell to its intraday low of $1373.4 an ounce just before the markets in U.S started their final session of the week. Gold however, found a support at these levels and turned around, erasing all of its intraday losses and peaking to another record level for second day in a row. Gold made a new all time high of $1398.1 in later part of U.S session and closed near its session high at $1395 an ounce.
Other Metals:
Silver futures for December delivery closed up 70.5 cent to $26.74 an ounce on Friday.
Platinum futures for January delivery rose by $13.00 to $1,769.90 an ounce on NYMEX.
Palladium futures for December delivery rose by $10.65 to $685.40 an ounce.
December N.Y. Copper closed up 4 cents to $3.95 a pound on Friday.
Gold (News and Views):
December Comex gold closed up $14.60 at $1,397.70 an ounce on Friday. The London P.M. gold fixing was $1,395.50 on Friday compared to its previous P.M fixing $1,381.00. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1292.189 tons on November 02 down from 1293.101. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.90 to 76.61 on Friday. Crude Oil for October delivery rose by $0.91 to settle at $87.40 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.Factors Affecting Gold Price Yesterday:
Goldman Sachs says the FOMC quantitative easing announcement from Wednesday was widely anticipated, but it was not completely priced into the gold market like it was priced into the U.S. Treasury Inflation Protected Securities, or TIPS, market, making gold “under-bought.” The wave of buying that has sent gold close to $1,400 an ounce is likely driven by a sharp rise in net speculative long positions and that activity is
likely to continue. “We expect that ultimately, net speculative long positions will rise to a record 37 million toz given that U.S. TIPS yields are below 50 bps (basis points),” the bank says in a research note.
"Bullion investors are ignoring what the dollar is doing right now and looking more at what the Fed is doing, knowing it's inflationary for the market regardless of what it does," said Jeff Pritchard, a broker at Altavest Trading.
"At some point, there is no way that inflation won't be an issue. Right now, if you want a return on your money, the commodity and stock markets seem to be the place," he said.
Comex gold futures slipped in the immediate wake of a stronger-than-forecast report on October U.S. non-farm payrolls. This was largely due to profit-taking as the dollar blipped higher, says Daniel Pavilonis, senior market strategist with Lind-Waldock. At 8:46 a.m. EDT (1246 GMT), December gold was $3 lower to $1,380.10 an ounce but had been softer. Still, Pavilonis says gold's longer-term bull trend remains intact and he anticipates an eventual rise to $1,500.
While gold hogs the headlines in the continuing rally off the Fed move, George Gero, vice president with RBC Capital Markets Global Futures, precious metals strategist, said other metals are getting the star treatment, too. “More attention is being given silver, platinum, palladium and copper,” he said.
Interest in owning the metals come from a “back to basics” mentality: “low dollar, low rates and more asset allocation,” Gero said.
A weaker U.S. dollar should remain constructive for base metals, but the Fed’s liquidity boost this week and a market preference to hold hard assets as a store of value will be helpful also, says a research note from Credit Agricole CIB. “Whilst it’s also true that a rising tide of easy money will lift everything, performance will not be equal. It appears likely the biggest impact will be felt in metals where the fundamentals are already strongest such as copper and tin,” the bank says. The Fed’s quantitative easing has convinced investors that the “downside risk is relatively limited and that it is now the time to really test the market’s upside potential.”
Gold Future Outlook:
The Fed’s return to quantitative easing and gold’s rally could reinvigorate investor demand in exchange-traded funds, “which has been remarkably subdued in recent months. This represents upside risk to both our forecasts and to gold prices,” Goldman says in a research note. Goldman is keeping its 12-month price forecast for gold at $1,650 an ounce.
Buying of dips is likely to be a factor in metals trade for at least the short-term, said Spencer Patton, president, Steel Vine Investments. “There is the potential for a pullback, in order to fill the gap on the (December Comex gold) chart from $1,359.20 to $1,368. If we see a pullback it could move to there, but I doubt we’ll see it. There will be lots of buyers,” Patton said.
It’s easy to see gold hitting $1,400 early next week and silver possibly rising to $27 an ounce, Patton said.
Ira Epstein, director of the Ira Epstein division of The Linn Group said, the rally in gold this week ends the mid-October correction and that gold could see $1,450 “in the very near future,” he said.
Epstein said gold has upside momentum going into year end, although some consolidation is likely to take place between now and then. He does not expect the recent low of $1,315.60 set on Oct. 22 to be retested and given the combination of the Fed’s actions and the seasonally strong tendency for gold to rise, “I can’t help but walk away with the idea that higher prices, possibly much higher prices are on the horizon,” Epstein said.
He added, though, not to get swept up in the emotion of the current market. “Probably the best advice I can give you is to not buy blindly. Know where you’re wrong or where you can’t stand the pressure of a downside correction. Regardless of what the Fed does, there will inevitably be points along the way where market forces come together to offer you with a price correction,” Epstein said.
“Gold prices may simply continue rising until Fed policy is normalized,” said Tom Pawlicki, an analyst at MF Global Holdings Inc. in Chicago. “Eventually, gold will begin to lose out to risk markets like stocks as the prospect of easing decreases.”
Daily Gold and Silver Expected Range:
Gold: US$1375- $1410
Silver: US$26.35 - $27.25
Technical Analysis (by Phil Smith):
Gold enjoyed a good pullback from its very overbought condition last week and is now testing the upper Bollinger Band line again which is providing overhead resistance.
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 was 1,293 but it did not make it this time.
Importantly the weekly target from the longer term Fibonacci Projection is closer than the daily. See the weekly chart projection at 1,454.
Turnover has come right down so this latest rise does not have a great deal of push and the market is starting to touch overbought levels again so do not expect much in the way of upside from here. Keep an eye on the Bollinger.
The correlations for gold have normalized ie high negative with the dollar and high positive with the stock markets. The usual negative correlation with the dollar is back in place and the dollar is moving steadily to the downside. So watch the dollar closely.
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.
Dollar Vs Commodities: (Courtesy of Marketwatch.com)
In a week when the Federal Reserve announced a $600 billion bond-buying plan, the above chart shows how commodities have strengthened and the dollar has dropped since the Fed’s plans were first hinted at during a speech in late August by Federal Reserve Chairman Ben Bernanke. The dollar has dropped 13%, and the Thomson Reuters/Jefferies CRB commodity price index has climbed 18%.
No comments:
Post a Comment