Gold Extended its Losses as Dollar Continued to Rise
| 16 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1373 | 1385 | 1394 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1352 | 1343 | 1330 |
| Today’s pivot point US$ | 1364 | | |
The Day’s Story:
Gold extended its losses on Monday after it recorded biggest daily decline in four months on Friday. Gold which shrugged off some of its Friday’s losses during the session couldn’t hold on to those gains and fell sharply in final hours of the session. Stronger dollar was the main factor behind gold’s decline although fears of sovereign debt crisis in Europe did limit precious metal losses due to its safe haven appeal. Some positive economic data from U.S also capped any upside in gold prices. Gold which rose significantly after FED’s QE2 announcement has erased all of its gains since as it entered a correction phase last week as many analysts believe metal has gone up too far too soon. How deep the correction is going to be will depend on dollar’s recent rebound but if European debt crisis deepens we may see both heading into the same direction as was the case in first half of this year.
Main U.S indexes ended mixed with DOW finishing the day with marginal gains. DOW Industrial Average closed .08% higher whereas S&P500 fell 0.12% and NASDAQ slipped by 0.17% after spending most of the day in positive territory as investors remain jittery during a busy week on economic calendar. Stocks earlier rallied at the back of positive economic numbers and slew of merger news but a sell off late in the session shows that investors remain focused on upcoming economic data to take further clues on economic growth. Retail sales increased 1.2% in October against analysts’ expectations of 0.6%, a good news for retailers hoping for strong holiday sales. However, it wasn’t all rosy scenario as a separate report indicated that manufacturing in New York area declined in early November as compared to previous month while bigger than expected rise in U.S business inventories in September suggested that demand may not keeping pace with supply. Stocks in Europe however, managed to pare their earlier losses and ended in positive territory despite ongoing debt worries in Ireland which may ask for a bailout package from European Union.
U.S dollar continued its run towards North for another day as renewed sovereign debt worries continued to plague European common currency which fell the most against greenback. Investors had been dumping bonds from Ireland, Portugal and Spain on worries that they would be next on list if the country needed bailout
money or defaulted. Stronger dollar typically takes the shine away from gold, because it dents interest in the metal as an alternative asset and makes it more expensive for holders of other currencies. However, when risk aversion rises sharply at times of heightened economic uncertainty, as was the case during the sovereign debt crisis in the second quarter of this year, they can move in the same direction as both serve as safe haven destination for investors. This may happen again, if current euro zone debt fears worsen, analysts said. In the medium term, global uncertainty, currency instability, debate over quantitative easing round II, a possible Ireland default and Eurozone contagion all promise to leave the gold market vulnerable.
Gold price started its Monday session with gains and trimmed some of its Monday losses during early Asian trading hours. Gold could not hold on to those gains and gave away those gains as session progressed. Gold price remained under pressure as European markets started their first session of the week. Bullion recovered from its intraday losses as markets in U.S started their trading day and as economic data filtered in rising to its intraday peak of $1377 an ounce by mid U.S session. Gold once again could not stay in positive zone and fell back into red territory as stocks tumbled in the final hours of the session. Gold fell to its intraday low of $1355.7 an ounce and closed its day at $1360.5 an ounce with 0.5% losses.
Other Metals:
Silver futures for December delivery closed up 15 cent to $26.09 an ounce on Monday.
Platinum futures for January delivery rose by $1.20 to $1,685.80 an ounce on NYMEX.
Palladium futures for December delivery rose by $7.65 to $681.30 an ounce.
N.Y. Copper for March delivery closed up 3 cents to $3.92 a pound on Monday.
Gold (News and Views):
December Comex gold closed up $3.00 at $1,368.50 an ounce on Monday. The London P.M. gold fixing was $1,368.50 on Monday compared to its previous P.M fixing $1,388.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1290.855 tons on November 11 down from 1291.766 a day earlier. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.44 to 78.59 on Monday. Crude Oil for December delivery fell $0.02 to settle at $84.86 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. India imported 43 tons of gold in October, 65% more than last year, analysts at Commerzbank said in a note to clients Monday, attributing the figure to the Bombay Bullion Association. Factors Affecting Gold Price Yesterday:
"Gold is stabilizing from last week's significant sell-off and liquidation plunge, and investors are just taking a pause right now to determine the next direction," said Frank McGhee, head precious metals trader of
Integrated Brokerage Services.
"We had very little follow-through selling today, and the market was well bid even in the face of the stronger dollar," McGhee said.
Technical buying also helped boost U.S. December gold futures as prices found support and rebounded after briefly dipping below their 20-day moving average, McGhee said.
Commerzbank analyst Eugen Weinberg said newly resurfacing worries over the stability of certain euro zone economies were "definitely helping" the metal and it explained why gold was not trading much lower.
“Demand for gold as an alternative currency is alive and well,” said Frank Lesh, a trader at FuturePath Trading in Chicago. “The fiscal and debt problems of the West will continue to support gold.”
“Gold has hit its objectives on the upside and given people huge profits for the year, so people are paring back their positions,” Lesh said.
Gold Future Outlook:
Beyond the short-term correction in the gold price, the environment remains very positive for the metal," said Anne-Laure Tremblay, an analyst at BNP Paribas.
"Demand for gold is broad-based and is unlikely to falter next year, notably due to low interest rates, ample liquidity, inflationary concerns (particularly in Asia), issues relating to euro zone periphery countries and a weakening dollar," Tremblay said.
“Gold benefited in May and June when sovereign-debt concerns were at their peak,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago. “There’s the potential that gold resumes its role as a safe haven if problems with European-sovereign debt continue to grow.”
“India’s gold imports could continue in November and December, albeit at slightly lower momentum, and they could also find support if the latest fall in prices is seen as an attractive buying opportunity,” the Commerzbank analysts said.
With equity markets just as volatile, traders might also be forced to sell some gold for cash headed into the end of the year as the metal has rallied more than 25% year to date.
Although this climate leaves gold prices on rough ground for the short term, some gold bulls and stock bears are still seeing $2,000 plus gold prices. David Tice, Federated's chief portfolio strategist for bear markets, is still anticipating that the Dow Jones Industrial Average and gold will resume a 1:1 ratio. "They could cross at 3,000 or 4,000 maybe at 6,000 it depends on how much money Bernanke prints into the system."
Daily Gold and Silver Expected Range:
Gold: US$1346- $1388
Silver: US$24.75 - $26.40
Technical Analysis (by Gary Wagner):
Chart 1 (From November 1st: Commentary)
On this last Monday I recommended that my subscribers consider exiting long positions and take a neutral market stance. The following is why I was drawn to that conclusion and issued that recommendation. First: There were technical signs leading up to this sell-off. The fact that our price forecast of 1421 aligned with the Pitchfork gave us reason to look.
Chart 2 (below) shows that as gold prices moved towards 1425 (the upper handle of the Andrews Pitchfork) it found resistance. Just as at the top of wave 3, gold prices would enter a battle the bulls could not win. Second: both tops contained engulfing bearish patterns. However on this last top the candlestick pattern never confirmed, so it was not acted upon.
It was on Monday, when gold traded through 1388 (as seen in chart 3), the former record high that I was convinced this was more than a simple round of profit taking. Of course, it was China’s announcement of a
Potential interest rate hike that sparked commodities to tumble worldwide. But from a technical standpoint the break below support was all traders needed to start liquidating longs.
I firmly believe that we are at a most critical level, which could signal the end of this incredible impulse phase which began in February. With a continuation of the selling pressure witnessed last week, we will enter a full blown correction.
However there is still I believe the opportunity for gold to recover here, and move higher. If gold can somehow find support at 1360, and because we have entered the price territory of wave 3, an upward move in gold prices would continue wave 5. That being said it is more likely that this is the start of an A-B-C Corrective wave set.
As of this writing, even with all of the strong fundamental reasons for gold to rise, we must remember that corrections are healthily and necessary in a bull markets. Has the Bull Run out of gold? Only while it rests.
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