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Gold Upward Momentum Continues for Fourth Straight Session
Gold Ended Higher for first Time in 5 Sessions as Dollar Retreated
| 19 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1363 | 1374 | 1388 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1339 | 1324 | 1314 |
| Today’s pivot point US$ | 1349 | | |
The Day’s Story:
Gold gained for the first time in last five sessions as fears over Ireland debt situation eased and dollar weakened. Gold rebounded strongly as bargain hunters found it an opportunity to take benefit of cheaper prices as gold fell as much as $94 since it peaked to its all time high of $1424 an ounce last week. Dollar which gave away some of its recent gains also supported precious metal prices. Risk appetite returned to the market as investors sought for higher yielding currencies like euro which helped gold to make a comeback as well. Turnaround came at the back of the news that Ireland asked for a bailout package from IMF and EU to help its failing banking system. Gold is still down by 1% on weekly charts and this will be its second weekly loss in a row if it finishes below $1370 an ounce.
Main U.S. indexes soared Thursday as worries about Ireland's debt situation that have plagued the stock, currency and commodities markets eased and auto giant General Motors made its long-awaited come back to main board. The Dow Jones Industrial Average closed up 173.35 points, or 1.57%. The S&P 500-share index rallied 1.54% to 1196.69 while NASDAQ gained 1.55% to end the day. Stocks were also boosted by positive economic data as Initial Jobless claims rose less than market expectations and Federal Reserve Bank of Philadelphia recorded its best gains in general business activity since last December. Gold which normally tracks stocks move due to their positive correlation also found some support at the back of those gains.
U.S dollar came under selling pressure once again and lost some of its ground recovered in last few sessions at the back of Euro weakness. Dollar which moves inversely to gold due to their negative correlation triggered a selloff in Raw materials such as gold, platinum, copper and crude oil this week on talk of a possible Chinese interest rate hike and uncertainty in Europe. But as European debt fears which have been the main catalyst for greenback in recent days abated, dollar fell out of the favor helping gold to regain some of its lost ground as a result of their negative correlation which has strengthened in last few sessions.
The past few days have caused havoc among investors due to worsening debt situation in Ireland and market
speculation that Ireland would struggle to refinance its sovereign debt and chances of a payment default were increasing causing euro to skid to its 2 month low as a result. On Thursday Irish Central Bank Governor showed his willingness to seek help from IMF and EU to restructure its debt which helped Euro pare some of its recent losses with the single European currency rallying to $1.3620 from $1.3520. As the currency risk surrounding the euro abated, investors returned to gold to hedge against the softer dollar.
FED Chairman Ben Bernanke is speaking at a conference in Frankfurt later tonight along with ECB Chairman Trichet, IMF's Strauss Kahn and PBoC's Zhou. Market will be keen to hear what those gentlemen have to say about recent global economic events. Gold prices are set to remain volatile with large price swings either direction. Some gold investors are a bit skittish heading into Friday as worries persist that China might raise key interest rates. Typically China raises interest rates on the 20th of any given month, which is making investors wonder if the central bank will continue with tradition tomorrow.
Gold price started its day with gains and continued to make its way up throughout Asian session as investors found the latest dip in prices an opportunity to pile up more to their existing holdings. Gold maintained its upward momentum during early European session and peaked to its intraday high of $1359.1 an ounce. Gold came under mild selling pressure and pared some of its intraday gains during rest of the European trading hours. Gold did manage to make its way up again during U.S session although interest was limited due to a strong rally in stocks with GM being the darling of the day at its yet another debut. Gold closed its day with strong gains of 1.4% at $1353.2 an ounce.
Other Metals:
Silver futures for December delivery closed up 129 cent to $26.81 an ounce on Thursday.
Platinum futures for January delivery rose by $19.00 to $1,659.90 an ounce on NYMEX.
Palladium futures for December delivery rose by $40.10 to $694.95 an ounce.
N.Y. Copper for January delivery closed up 10 cents to $3.83 a pound on Thursday.
Gold (News and Views):
December Comex gold closed up $16.10 at $1,353.00 an ounce on Thursday. The London P.M. gold fixing was $1,350.25 on Thursday compared to its previous P.M fixing $1,337.50. 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, fell 0.46 to 78.59 on Thursday. Crude Oil for December delivery rose by $1.41to settle at $81.85 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 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
Factors Affecting Gold Price Yesterday:
Precious metals are rebounding today along with other commodities, mainly as the dollar weakens relative to a number of currencies," said Anne-Laure Tremblay, BNP Paribas precious metals strategist.
It's not just a currency thing. It's got to do with the belief that governments aren't in control of the economic and financial situation. That's been supportive for gold investment," said Matthew Turner, an analyst with Mitsubishi.
At one point, everyone was selling commodities," said Simon Weeks, head of precious metals at the Bank of Nova Scotia. "People had been good buyers, everyone had put risk back on the books, and suddenly they got panicky about China and started liquidating, and gold got caught up in that.”But I do think it will reassert itself on the crosses at some point as a currency, because clearly people don't like the currency markets. Generally speaking, whichever currency you are looking at people aren't really that comfortable," he said.
“We’re seeing some support off the weak dollar and renewed buying interest” after prices dropped, said Stephen Platt, an analyst with Archer Financial Services in Chicago. “The question is, is it just a retracement or the start of a new uptrend?”
“There is a direct link between how much money the government creates and demand for gold,” Nicholas Brooks, the head of research and investment strategy at ETF Securities Ltd., said today in an interview in New York. “As an alternative investment to the U.S. currency, gold is the primary destination for investors go to.”
Gold Future Outlook:
A rise in interest rates in China would put more pressure on gold prices and some analysts think it would be enough to retest the $1,315 and then $1,260 an ounce support area. Scott Redler, chief strategic officer for T3Live.com, says he needs to see where prices settle and calm down before re-establishing his price targets.
"I actually see the potential for a short-term head-and-shoulders top," says Redler, "where you have the first move which was a left shoulder into the high $1,300s and then you had the head above $1,420. [Now] it's coming into support which has been $1,320 so if we get a feeble bounce up to $1,340, $1,350 and start rolling over that'll be a head and shoulders top."
Redler says if prices follow the head and shoulders top pattern, there could be a more drastic move to the downside to $1,200 before gold finds meaningful
“About the only thing we are comfortable stating is that we remain long of gold in non-U.S. dollar terms, and
we believe strongly that gold’s correction has run its course,” said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter.
Much of gold’s short-term future will hinge on settlement levels in the next couple of days, Platt from Archer financial Services said. Settlements above $1,362 might indicate a run back toward $1,380; a much lower level, a test of $1,320 or even $1,305, he said.
Technical Analysis (by Jim Wyckoff):
Technically, December gold futures prices closed nearer the session high Thursday. Some near-term technical damage had been inflicted recently. However, a bullish weekly high close on Friday would repair most of that damage and provide the bulls with some fresh upside near-term technical momentum to suggest the recent uptrend on the daily bar chart can be restarted.
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 Thursday's high of $1,359.00 and then at $1,366.00.
Support is seen at $1,350.00 and then at $1,340.00. Wyckoff's Market Rating: 6.5.
Daily Gold and Silver Expected Range:
Gold: US$1342- $1375
Silver: US$26.20 - $27.80
More Technicals (By Phil Smith):
Gold is pulling back again from an overbought condition with the upper Bollinger Band line again 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.
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