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Gold Upward Momentum Continues for Fourth Straight Session
Gold Fell for Fourth Straight Session in Quiet Trading
| 18 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1343 | 1351 | 1358 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1329 | 1323 | 1315 |
| Today’s pivot point US$ | 1337 | | |
The Day’s Story:
Gold extended its losses further on Wednesday making it 4th down session in a row, losing $80 of its value during this time. Gold traded in a quiet mode capped in a tight range during yesterday's session as traders took a breather after recent price volatility. Stronger U.S dollar which has bounced back at the back of Euro weakness has also contributed to precious metal's losses. Gold has also been affected by concerns shown by Chinese officials that World's second biggest economy is trying to tighten its policy further to control rising inflation. Technical trading is also contributing to gold's volatility right now as options expiration comes at the end of the month and recent sell-offs have triggered sell-stops, where traders, trying to preserve profits, are forced to sell. Expect gold price range bound as long as European debt situation helps dollar and caps any gains in yellow metal. Gold had advanced 24% this year and looks well set to post its 10th annual gain.
Main U.S indexes ended mixed Wednesday after trading in a narrow range for most of the day as investors weighed inflation and housing reports ahead of GM's initial public offering. The Dow Jones industrial average fell 0.1%, to close at 11,007. The S&P 500 closed just above the breakeven point at 1178 while NASDAQ rose 0.3%, to close at 2,476. Stocks came under pressure as economic data painted a gloomy picture over health of the economy. Government data revealed that Consumer Price Index which measures inflation was unchanged in October. Another report showed that new home construction fell below analysts’ expectation in October. "The CPI is too close to zero for comfort, it's not what we'd like to see at this point," said Paul Zemksy, head of asset allocation at ING Investment Management.
European Union debt crisis with Ireland in leading role this time continued to shake investors’ confidence and raising doubts over the debt situation in other European nations as well. Meantime, the International Monetary Fund and European Union are increasing pressure on Ireland to take a bailout before it gets any worse. Ireland's finance minister is expected to meet with officials from the European Central Bank, EU and IMF on Thursday to discuss the possibility of aid package and examine the health of Irish banks. Despite lingering debt crisis in Europe, main European indexes bucked the trend and ended in positive territory after a day of
sharp losses. Lack of trend in stocks also kept the traders away from precious metal due to the positive correlation between the two.
U.S dollar’s recent rally paused as dollar traded flat to weaker while Euro managed to pare some of its recent losses. Dollar losses came as weaker economic data bolstered the FED’s case for another stimulus which has been under severe criticism over its $600 billion QE2 package which is seen as a dollar-diluting stimulus plan.
"Any lingering...criticism about the Federal Reserve's decision to increase stimulus was dashed by today's weaker economic reports," said Kathy Lien, director of currency research at GFT Forex in New York.
Despite weaker than expected economic numbers, euro remains near its seven weeks low against dollar. Market participants badly want to see how the debt situation in the euro zone plays out this week, before embracing the euro wholeheartedly, analysts said.
Gold which normally moves in opposite direction to greenback has also been affected by dollar’s recent gains. In first half of this year both dollar and gold benefited from European debt crisis as both acted as safe haven in times of heightened economic uncertainty. Gold has gone under much needed correction this time and although analysts believe it may fall further down to 1300-15 in short term but its overall outlook remains bullish and consider this corrective pullback healthy for gold prices. Market participants will likely take their cues for the remainder of the week from actions and words that emerge from Dublin, said analysts
Gold price were quiet during Asian trading hours after sharp declines a day earlier. Bullion was capped in a narrow trading range during Asian session but broke above its range during early European session although gains were limited as traders decided to stay on sidelines after recent price volatility. Gold price seesawed between gains and losses in late European and early U.S trade, rising to its intraday high of $1144.7 an ounce during U.S morning session. Gold however, pared those minor gains and ended its day with marginal losses, closing at $1335.8 an ounce.
Other Metals:
Silver futures for December delivery closed up 28 cent to $25.51 an ounce on Wednesday.
Platinum futures for January delivery fell $4.80 to $1,640.90 an ounce on NYMEX.
Palladium futures for December delivery rose by $8.95 to $654.85 an ounce.
N.Y. Copper for January delivery closed up 1 cent to $3.73 a pound on Wednesday.
Gold (News and Views):
December Comex gold closed down $1.50 at $1,336.90 an ounce on Wednesday. The London P.M. gold fixing was $1,337.50 on Wednesday compared to its previous P.M fixing $1,349.00. 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, fell to 79.05 on Wednesday.
Crude Oil for December delivery fell sharply to settle at $80.44 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. The World Gold Council also released its gold demand trend report for the third quarter, which showed that total gold demand grew 12% from the same period a year earlier. Jewelry demand grew 8%, led by emerging market countries like China and Turkey; retail investment rose 25%; gold ETF demand slipped 7% as there was no imminent crisis in the third quarter; industrial demand grew 13% back to pre-crisis levels BNP Paribas raised its silver forecast for next year to$25.80 from $19.70 and increased its platinum estimate to$1,800, from $1,640. The bank raised its palladium projection to$750 from $520. Factors Affecting Gold Price Yesterday:
“We’re seeing a lot of long liquidations,” said Frank Lesh, a broker and futures analyst with FuturePath Trading in Chicago, referring to investors’ bets that gold will go higher.
Rollover — when investors must choose between continuing on with subsequent-month contracts, take delivery or liquidate — has started in earnest and some investors are choosing to sit out, Lesh said.
“A lot of the funds made an awful lot of money this year” and they don’t want to risk these profits in a “thin and uneventful” end-of-the-year market, he said.
“Gold investors are afraid that China is going to put in these price controls to clamp down on inflation and to raise interest rates. So, the news cooled off speculation in the gold market a bit," said Donald Selkin, chief market strategist of National Securities Corp.
"It's performed reasonably well in the correction relative to, for example, some of the base metals. Gold is only off about 6.5 percent from the high. Compare that to something like zinc, for example, which has plunged and is now down about 20 percent from the recent highs," said Credit Suisse analyst Tom Kendall. "That reinforces the defensive qualities of gold and its diversification benefits."
The dollar’s rally is “eating into gold’s attractiveness as a substitute holding,” said Jon Nadler, an analyst at Kitco Inc. in Montreal. “The path of least resistance is still lower.”
“Small bargain hunters (are) cautiously testing the market after almost $100 down in the past week,” says George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. This has been helped by the euro’s ability to hold around unchanged levels this morning, thus avoiding further losses. The metals market is keeping an eye on a meeting of European authorities to discuss Ireland’s debt situation, movement in the dollar, interest rates and the performance of crude oil, Gero says. Meanwhile, the rollover from Comex December gold into the February is under way.
Gold Future Outlook:
Jed Handwerger, editor of GoldStockTrades.com, is looking for a correction to $1,250 before he re-enters the market.
"I would be looking for specific patterns ... this recent breakout ... was not really a strong breakout," says Handwerger who is still expecting a dollar bounce and is urging investors to be cautious. "I've told my readers to be 100% defensive we have a lot of different issues in the markets right now ... we have to be careful of a significant correction."
Kevin Cook, analyst for Options Profits, says gold has probably touched its highs for the year but that the bull trend could resume in January. "I will be looking for a timing opportunity to establish new long positions in gold, via SPDR Gold Shares and Market Vector Gold Miners"
Newsletter editor Ned Schmidt of the Value View Gold Report said that both gold and silver could trade down to their 200-day moving average which comes in at $1,217 an ounce for gold and $19.26 an ounce for silver.
Adrian Ash, head of research for bullionvault.com, also credits China and India with leading gold prices higher. "If you look at the Indian market, a lot of the Indian gold buying is mandated by the religion ... often in India that buying is done by the housewife. What you are seeing now ... is the husband in the house is now starting to look at gold as a physical investment."
Ash says it's the volatility in gold prices that scares off buyers not the high prices and that once prices settle then gold buying should resume in full force. According to the WGC report, jewelry demand in India grew 36% in the third quarter as the rupee rose vs. the dollar which helped give consumers more purchasing power despite the fact that gold broke $1,300 an ounce.
Technical Analysis (by Jim Wyckoff):
Technically, December Comex gold futures prices closed near mid-range Wednesday. Near-term technical damage has been inflicted recently to begin to suggest a near-term market top is in place.
Bulls' next near-term upside technical objective is to produce a close above technical resistance at the October high of $1,388.10.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,315.60. First resistance is seen at Wednesday's high of $1,344.60 and then at $1,350.00.
Support is seen at this week's low of $1,329.00 and then at the November low of $1,325.50.
Wyckoff's Market Rating: 6.0.
Daily Gold and Silver Expected Range:
Gold: US$1325- $1360
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