Gold Upward Momentum Continues for Fourth Straight Session
QE2 Failed to Shake Gold Lovers Confidence - Market Focus at Friday’s Jobs Report
| 04 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1367 | 1385 | 1406 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1327 | 1307 | 1288 |
| Today’s pivot point US$ | 1346 | | |
The Day’s Story:
Spot gold finished 0.5% lower in a volatile trading session after falling as much as 2.4% earlier during the session. Gold losses came ahead of FED’s announcement after their two day’s meeting in which details of highly anticipated quantitative easing measures were announced. Federal Reserve Bank pledged to buy $600 billion of Treasury Securities over a period of eight months, including $75 Billion this month to aid anemic recovery. Such measures are referred to as quantitative easing aimed at pushing down long-term yields, which move inversely to the price of the securities. Gold losses came as better than expected economic data started to filter in just before U.S session and investors locked some of their profits from earlier gains to position themselves ahead of FED’s announcement. Gold is already up by 25% this year and looks well on its way to post its 10th annual gain.
U.S stocks finished higher at the news of fresh round of monetary easing measures in a statement by FED after FOMC monthly meeting. DOW finished to its highest level since September 2008 when recession deepened after the collapse of Lehman Brothers. S&P500 also moved closer to 1200 level with financial sector the strongest among its 10 industrial groups. Market had a lot of economic data to digest before U.S market open as ADP report revealed that Private sector hired 43,000 people last month which was more than market consensus. The ISM services index expanded in October, while a separate report from the government had factory orders up 2.1% in September. Stocks did not respond to spate of economic reports before U.S market open as traders had only one thing in mind and that was exact amount of QE2 and terms attached. Gold however, was hit by profit taking as day’s economic data painted a brighter picture of the economy which off course takes shine away from precious metal as it loses its appeal in times of economic stability.
U.S dollar had a mixed day, trading higher earlier in the session but finished lower at the end of the session. U.S dollar was boosted in an aftermath of FED’s announcement but quickly gave away those gains as FOMC statement is considered dollar bearish because more money in the economy means cheaper dollar. Gold also
reacted strongly to the news and fell deep into the red in a knee jerk reaction but managed to pare most of its
losses before close of the day. Gold outlook remains bullish as new stimulus is going to weigh dollar further down. Although amount of $75Billion per month is less than analysts expectation who were expecting $100 Billion bond purchase per month which could lead to a near term bounce back in greenback but gold remains supported from various fundamental and technical factors and a short-term rebound in dollar index is not likely to change gold's bullish stance. Now that Cat is out of the hat, market has turned its focus to Friday’s Non-Farm payroll report to get further clues on job’s market and positive numbers could trigger further correction in gold prices.
Gold price started its first session on a quiet note ahead of a data packed day and traded in a narrow range. Gold price was boosted as markets in Europe started their trading day and peaked to its intraday high of $1364.5 an ounce by mid European session. Gold however met with some profit taking which turned into broad sell off as better than expected economic data from U.S started filtering in. Gold remained volatile in early hours of U.S session and fell deep into red soon after FED’s announcement. Bullion managed to pare most of its intraday losses as bargain hunters benefited from dip in prices and finished its day 0.5% lower at $1348.3 an ounce.
Coming Up Today: Bank of England Interest Rate Decision (UK)
European Central Bank Interest Rate Decision (EU)
Weekly Jobless Claims (USA)
Other Metals:
Silver futures for December delivery closed down 40.0 cent to $24.44 an ounce on Wednesday.
Platinum futures for January delivery fell $22.10 to $1,697.00 an ounce on NYMEX.
Palladium futures for December delivery fell $2.75 to $642.70 an ounce.
December N.Y. Copper closed down 5 cent $3.79 a pound on Wednesday.
Gold (News and Views):
December Comex gold closed down $19.30 at $1,337.60 an ounce on Wednesday. The London P.M. gold fixing was $1,345.50 on Wednesday compared to its previous P.M fixing $1,351.00. 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, fell 0.38 to 76.31 on Wednesday. Crude Oil for October delivery rose by $0.79 to settle at $84.69 on Wednesday 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. A report at a Shanghai conference, saying that China’s gold market could double in the next decade on retail investment and jewelry demand, has profound implications for the metal, says Mark O’Byrne, director of GoldCore. Chinese consumption may rise 800 to 900 metric tons in the 10 years, a World Gold Council official told the conference. Says O’Byrne of Dublin-based GoldCore: “That has huge implications for the gold market. Supply remains constrained.” Not only does mining output remain limited, but central banks collectively have been net buyers rather than sellers lately, erasing that source of supply, he says. Supply has come from the International Monetary Fund in recent months as it sells some of its gold to fund programs for poor nations. “But obviously that supply is going to run out in the coming months as well,” O’Byrne says. Thus, the projection for Chinese demand to double suggests that the fundamental picture for the gold market remains favorable, he concludes.
Factors Affecting Gold Price Yesterday:
Then bargain hunting emerged in precious metals right after the Fed statement, allowing the gold to quickly bounce, said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. However, Gero and others said, profit-taking quickly followed.
“It’s been extremely volatile,” said Frank Lesh, broker and futures analyst with FuturePath Trading. “We shot up to $1,349, dropped down to a new low on the day at $1,325.50 and now here we are at $1,341 (as of when he spoke). There were bargain hunters coming in and probably some short covering.”
However, he commented, the market did not fall enough to force long-term players to exit long positions. The December gold futures remain above support at last week’s low at $1,318.60, he said.
"We had a lot of nervous liquidation in the markets today," observed Bill O'Neill, a principal with Logic Advisors. "This is just noise, all the factors driving gold higher are still intact."
Gold has come off because a lot of expectations were already built in. The market was so overbought that it had become a momentum play, it really needs a good dip to give a good buying opportunity," Ashok Shah, chief investment officer at London and Capital Fund.
Gold Future Outlook:
Mike Daly, gold and silver specialist with PFGBest, described the market as volatile as traders tried to decipher just what the Fed statement means for gold’s future prospects. It ultimately should be supportive, he said.
“I think the bottom line is the amount the Fed is going to issue -- $600 billion – no matter how you look at it, that’s printing an awful lot of money between now and the end of the second quarter of 2011,” Daly said. “Any time you print that kind of money…it has to be seen as a little bit inflationary…People are remembering the old rule, when you print more, the dollar is worth less.”
As a result, investors are looking at gold as the “currency of choice,” Daly continued. “Overall, it’s very dollar bearish and gold friendly.”
Commenting on future prospects for gold prices, Frank Lesh added, “It is extra stimulus, a little bit more than expected” Lesh said. “They also left open that they can do more, if necessary. All of this really doesn’t say much for the dollar going forward.
“It looks like currency volatility is expected to continue. Fiscal irresponsibility on the part of most Western nations is still out there. All of the factors driving gold are still there. I still expect higher prices.”
Tom Pawlicki, analyst with MF Global, commented that the quantitative easing itself could be bullish since it shows the Fed is still pumping money into the economy, as well as saying it is still reviewing plans and could adjust the amount of quantitative easing as necessary. However, he cautioned, this could be more than offset by potential for a new Congress to be more austere than the old after Republicans captured the House of Representatives, which could end up being a bearish factor.
"Short term we have a sell-off. After the sell-off you have to move back into gold and precious metals and buy back those precious metals and commodities you may have sold going into this meeting," said Michael Pento, senior economist with Euro Pacific Capital in New York.
He added: "This is going to lead us to the very high likelihood of an inflationary death spiral."
Gold trading may be muted ahead of the outcome of the FOMC meeting Wednesday, say analysts with Standard Bank. The market consensus seems to be the Fed will announce quantitative easing of some $500 billion, which is consistent with a gold price around $1,350 an ounce, Standard says. The bank sees a risk in which the Fed disappoints markets by announcing a “staggered approach,” with smaller amounts of asset purchases on a monthly basis; this could mean a pullback in gold prices. “Nevertheless, any additional liquidity (no matter in what manner it is delivered) should be bullish for precious metals, especially for gold,” Standard says in its daily research note. “Therefore, we would buy on dips. In addition, seasonal jewelry demand for gold (ahead of Diwali and the Indian wedding season) remains strong, even at current prices, adding weight to our bullish stance over the medium term.”
Technical Analysis (by Jim Wyckoff):
Technically, December Comex gold futures closed nearer the session low Wednesday and scored a bearish "outside day" down on the daily bar chart--whereby the daily high was higher and daily low was lower than the previous day's trading range.
Bulls still have the overall near-term and longer-term technical advantage, but did fade Wednesday and need to show some fresh power soon.
Bulls' next near-term upside technical objective is to produce a close above solid technical resistance at this week's high of $1,366.40 in December futures.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,315.60. First resistance is seen at $1,350.00 and then at last week's high of $1,359.80.
Support is seen at Wednesday's low of $1,327.10 and then at $1,320.00.
Wyckoff's Market Rating: 6.5.
Daily Gold and Silver Expected Range:
Gold: US$1338- $1370
Silver: US$24.20 - $25.30
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