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Gold Held on to Its Gains in Another Choppy Trading Session
| 12 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1418 | 1428 | 1439 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1397 | 1387 | 1377 |
| Today’s pivot point US$ | 1407 | | |
The Day’s Story:
Gold price ended in positive territory after another volatile trading session on Thursday. Gold which traded on both side of zero line managed to finish above critical 1400 level as stocks in Europe and U.S tumbled for 3rd day this week. Gold gains were a flight to safety at the back of European debt issue, uncertainty looming over currency markets and inflation worries after FED’s fresh stimulus package. Gold which rose just shy of its all time high earlier during the session was sunk by strengthening U.S dollar but later “Buy at Dip” mentality lifted the prices back up again. Gold has enjoyed an unprecedented run so far this year and has outperformed stocks, most commodities and currencies and looks set to post its 10th annual gain.
U.S stocks had another down day on Thursday making it 3rd in last four sessions. US stocks tumbled after a disappointing outlook from Cisco Systems rattled a market already on edge ahead of a G20 summit in South Korea. Global leaders came into the meeting with huge differences over currency and trade policies and a sense of pessimism was hanging over the start of the meeting of the leaders of top 20 nations of the World. The biggest loser on the day was NASADQ which lost 0.9% of its value while DOW shrank by 0.7% and S&P500 fell by 0.4% on Thursday. The news from Cisco to cut its sales forecast for second quarter in a row disappointed investors sending its shares down 16.2% to 20.52 dollars. Other Tech stocks which have been among best performers in recent months and Dow components were dragged down by Cisco news. Gold which has been following stocks direction for last few months broke away from their positive correlation and joined hands with U.S dollar instead in a rather unusual move this week as fresh European debt worries started to cast doubts in investors’ minds over strength of global economic recovery. Dollar and Gold normally move in opposite direction but at times of extreme economic uncertainty and risk aversion both benefit from safe haven appeal as we have seen in early part of this year. Comments from Irish Central Bank Governor a day earlier, calmed investors’ fears but had a short lived impact on the market.
G20 meeting in South Korea later this week will be the main point of interest for investors going into the weekend to take further clues. Market is hoping for a decisive action regarding currency exchange rules as
Germany, Brazil and China are heavily criticizing U.S for its recent stimulus what they regard as a currency
manipulation to encourage exports as cheaper U.S dollar will make it harder for those countries to sell their products abroad. The volatility of paper currencies has aired the debate of having a reserve currency other than U.S dollar and some officials are calling Gold for its replacement.
U.S dollar posted some decent gains on Thursday gaining most of its strength at the back of uncertainty in Eurozone which has put an enormous pressure on common currency. Gold was taking its lead from weaker Euro and Dollar’s strength due to its safe haven appeal. Latest data from China suggested that inflation was on the way up in China as CPI came at 4.4% on yearly basis. Rising inflation boosts appeal for yellow metal as it serves as a hedge against inflation. We may see further short-term gains in U.S dollar and despite some improvement on charts, its overall outlook remains bearish which is an underlying bullish factor for gold prices.
Gold price extended its gains at the start of Thursday session and continued to make its way up towards uncharted territory throughout Asian session. Bullion remained strong in early hours of European trade and hit its intraday peak of $1417.4 an ounce by mid European session. Gold came under pressure as dollar regained strength and fell into red territory slipping below $1400 level to its intraday low of $1397 an ounce in early U.S session. Gold however, managed to recover from its intraday losses as bargain hunters once again pushed the prices above psychological $1400 level and closed at $1408.2 an ounce.
Other Metals:
Silver futures for December delivery closed up 54.0 cent to $27.41 an ounce on Thursday.
Platinum futures for January delivery rose by $7.90 to $1,745.70 an ounce on NYMEX.
Palladium futures for December delivery rose by $7.40 to $704.15 an ounce.
December N.Y. Copper closed up 5 cents to $4.03 a pound on Thursday.
Gold (News and Views):
December Comex gold closed up $4.00 at $1,403.30 an ounce on Thursday. The London P.M. gold fixing was $1,398.50 on Thursday compared to its previous P.M fixing $1,390.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1294.2 tons on November 09 up from 1292.189. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.46 to 77.68 on Thursday. Crude Oil for October delivery rose by $0.00 to settle at $87.81 on Thursday 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. The CME Group, which owns Comex, said early Thursday gold futures set a fresh open-interest record on Thursday, with 658,979 contracts. It was gold’s second open-interest record in a row and third this month. Factors Affecting Gold Price Yesterday:
“The market went through a pretty sizeable correction this week,” said James Moore, an analyst with Thebulliondesk.com. Thursday’s gain “is flight to safety” as worries about Europe’s sovereign bonds, currencies, fundamental dollar weakness and inflation still dominate trading, he said.
The Eurozone drama is providing a backdrop for higher gold prices over the long term. "Investors will come in and buy physical gold when they get concerned [about defaults] or moving in the direction of defaulting on debt," says Nicholas Brooks, head of research and investment strategy for ETF Securities.
“Silver and gold should remain well supported” despite the day’s upward move for the dollar, analysts at Commerzbank said. “The yields of government bonds of some euro peripherals are still climbing, which is also increasing concern that some of these countries will not be able to sort out their debt burdens without external assistance.
“The re-emergence of sovereign risk should ultimately help the yellow metal,” Edel Tully, an analyst at UBS AG in London, said in a report. “Rising inflation is one of the single biggest factors driving China’s appetite for gold.”
“Some say there’s a bubble in gold prices or the metal is overbought, but the bull run does not seem to be receding,” said Lee Joon, a senior trader at Woori Futures Co. in Seoul.“Investors are rushing to risky assets like stocks and commodities with ample market liquidity.”
"Gold is resuming its role as a safe haven in times of crisis as the situations in Ireland and some European countries are getting worse. So, it has also been separating itself from the euro lately because of the safe-haven play," said Donald Selkin, chief market strategist at National Securities Corp.
Gold Future Outlook:
SEB Commodity Research says it now looks for gold to hit $1,600 a troy ounce in the first quarter of 2011. The Swiss bank notes gold has tended to be strong lately even as the dollar also firmed. This occurred as worries about sovereign debt in Europe picked up again, SEB says. Borrowing costs for some nations are rising after European leaders agreed to revise the Lisbon treaty to devise a permanent debt-crisis mechanism, SEB says. Meanwhile, the consequences of another round of quantitative easing in the U.S. are “beginning to sink in,” SEB says. This has spurred criticism over inflation concerns and may encourage countries with trade surpluses to invest elsewhere, with gold one of the alternatives, SEB says. “We are now seeing two examples of extreme measures used as conventional tools--U.S. QE2 and the European permanent debt crisis mechanism,” SEB says. “This is a long-term bullish issue for gold since it adds liquidity and devalues paper money. Thus our already bullish strategic view has strengthened and we now expect gold prices to reach $1,600/ozt in Q1-11.”
Nicholas Brooks, head of research and investment strategy for ETF Securities brushes off steep corrections
and thinks prices will keep moving higher. "Many investors have not actually participated in this rally ... and have actually been waiting for a long time now for the big corrections so they can get in ... [so] any correction will be relatively short-lived."
Against the current global macro economic backdrop, “we believe that the incentive to liquidate gold positions among investors and central banks remains small,” analysts at Merrill Lynch said in a note to clients Thursday.
Gold prices are likely to remain supported and set to hit $1,500 an ounce in the near future, they said.
VTB Capital analyst Andrey Kryuchenkov said that, while the precious metal is susceptible in the short term to losses in the dollar, in the longer run the increased focus on euro zone debt issues were likely to be positive for gold.
"Now that we are clear on QE2 (the second round of U.S. quantitative easing announced last week), the attention is back on the euro zone debt troubles, which is bullish for gold should risk aversion escalate from here," he said.
He said investors should watch "CDS spreads on Ireland/ Portugal, the Vix (U.S. volatility index), euro zone peripheral yields spreads over the bund and naturally the dollar index," to gauge risk aversion among investors.
Technical Analysis (by Jim Wyckoff):
Technically, December gold futures closed near mid-range Thursday. Gold made gains today despite a firmer U.S. dollar index, which is encouraging for the gold market bulls. Gold bulls have the overall near-term and longer-term technical advantage and have made a good recovery from Tuesday's selling pressure. A 3.5-month-old uptrend on the daily bar chart is in place.
Bulls' next near-term upside technical objective is to produce a close above technical resistance at this week's all-time high of $1,424.30.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,366.00. First resistance is seen at Thursday's high of $1,417.60 and then at $1,424.30.
Support is seen at Thursday's low of $1,396.50 and then at $1,388.10.
Wyckoff's Market Rating: 8.0.
Daily Gold and Silver Expected Range:
Gold: US$1382- $1425
Silver: US$26.65 - $28.20
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