Gold Finished Marginally Lower as Positive Economic Data Faded Safe Haven Demand
| 25 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1380 | 1387 | 1392 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1368 | 1362 | 1355 |
| Today’s pivot point US$ | 1374 | | |
The Day’s Story:
Gold finished marginally lower on a corrective pullback after last two day's gains in a quiet trading. Market had a lot of positive data to digest from U.S ahead of Thanksgiving holiday which capped any upside in precious metal. Dollar remained buoyant, rising to two months high against European common currency. U.S data revealed that year-on-year core inflation rose by record low 0.9% which reduced the gold’s appeal as a hedge against inflation. Some physical and technical buying kept prices steady despite pressure from resurging dollar. Korean conflict boosted gold prices a day earlier but no further action has been taken by any sides although U.S has sent an aircraft carrier to the region to show its support for South Korea. Gold is likely to benefit due to its safe haven appeal if tensions escalate between North and South Korea. Gold is expected to stay in a narrow range in today’s trading as markets in U.S will be closed due to Thanksgiving holiday. Yellow metal is up by 26% this year and has outperformed stocks, currencies and most commodities.
Main U.S. indexes rallied sharply as a string of positive data boosted investors risk appetite on hopes that U.S economic recovery is stabilizing and labor market may be improving. The blue-chip Dow Jones Industrial Average rose by 150.91 points or 1.37 percent to 11,187.28. The Standard and Poor's 500 index jumped 17.62 points or 1.49 percent to 1,198.35. The Nasdaq Composite Index surged 48.17 points or 1.93 percent to 2,543.12. Traders went home with smile on their faces as U.S markets erased all of their steep losses on Tuesday ahead of National Holiday. Investors’ confidence was boosted by slew of positive economic data. Initial jobless claims fell to their lowest level to 407,000 since 2008 while other reports revealed Consumer Sentiment Index rose to its highest level since June in its final reading for November. Personal Income rose by 0.5% slightly better than market consensus while personal spending rise fell a bit short of markets’ expectation. There was a surprise drop in durable goods order for October and New Home sale also dropped significantly but these numbers were totally ignored by investors as they focused at positive jobless claims numbers.
Stock markets around the globe declined sharply due to escalating conflict between North and South Korea after North attacked on its Southern neighbor’s Island on Tuesday. Ongoing worries over European debt
contagion fears have also sent shockwaves around the globe in last few weeks which has helped gold to regain some of its lost ground. But yesterday’s positive economic data halted gold’s advances as improving labour market and low inflation took some shine away from precious metal. Markets in Europe also left Korean conflict behind and closed sharply higher as Ireland bailout package restored some confidence among investors.
The U.S. dollar index traded near steady levels on Wednesday and finished a tad higher after hitting a fresh two-month high overnight. Recent rebound in greenback has been due to fresh European debt problems that has boosted the demand of greenback along with yellow metal as safe haven destinations for investors’ money. Demand for both assets is also seeing safe-haven buying in the wake of the Koreas' conflict. Past extreme geopolitical or financial ambiguity in the world has seen both gold and the U.S. dollar appreciate. Gold and dollar inverse correlation has weakened in recent days as was the case in first half of this year when European debt crisis surfaced. Both normally move in opposite directions because dollar denominated gold is more appealing to holders of other currencies if dollar depreciates in value.
Investors remain wary over European zone’s debt situation despite an apparent solution to Ireland debt crisis and that will keep the common currency under pressure for days to come. Gold loves economic turmoil and prosperous the most in such a scenario. If another debt-stricken European nation makes headlines in coming days, expect gold to rise further due to its status as a hedge against crisis. Korean conflict will also provide some safe haven buying for precious metal if situation gets worse in coming days. Traders will also look for China’s further measures to control inflation after last week’s rise in Reserve requirement for its banks. Some analysts had been expecting a hike in interest rates, which would have been more severe, and could still happen in the future. Any steps to fight inflation would weigh on gold prices as the metal is seen as protection against future inflation.
Markets in U.S will be closed today due to Thanksgiving holiday and Nymex Metals contracts will have shortened trading hours on Friday. Many traders extend their holiday by taking off Friday as well so this week may be quiet but heightened volatility can still be expected.
Gold price started its day in a volatile manner as price seesawed between gains and losses but remained capped in a tight range throughout Asian trading hours. Buyers outnumbered sellers during early European session and precious metal climbed to its intraday high of $1381.3 an ounce. Gold’s gains were short lived and moderate selling pressure sent prices back into red zone just before U.S markets started their trading day as economic data started filtering in. Gold traded in a narrow range without any particular direction throughout U.S session. After hitting its intraday low of $1369.2 an ounce, bullion finished its day just below its previous close at $1373.1 an ounce.
Other Metals:
Silver futures for December delivery closed down 4 cent to $27.53 an ounce on Wednesday.
Platinum futures for January delivery rose by $0.70 to $1,658.40 an ounce on NYMEX.
Palladium futures for December delivery rose by $4.30 to $695.40 an ounce.
N.Y. Copper for January delivery closed up 6 cent to $3.77 a pound on Wednesday.
Gold (News and Views):
December Comex gold closed down $4.60 at $1,373.00 an ounce on Wednesday. The London P.M. gold fixing was $1,372.50 on Wednesday compared to its previous P.M fixing $1,377.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose by 3 tons to 1285.284 tons on November 22 down from 1289.336. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose by 0.07 To 79.74 on Wednesday. Crude Oil for December delivery rose by $2.61 to settle at $83.86 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 net length of managed-money accounts fell from 229,543 lots for futures and options combined on Oct. 12 to 173,067 as of Nov. 16, the cut-off date for the most recent weekly data from the Commodity Trading Futures Commission. This was the first drop below 200,000 since August. Hu Xiaolian, a deputy governor of the central bank, said that the People's Bank of China would use "policy tools," among them raising interest rates, in 2010 to control lendingFactors Affecting Gold Price Yesterday:
Not all analysts are that positive -- some technicians are worried about substantially lower prices."It appears that the breakout in November after the FOMC meeting was a fake breakout," says Jeb Handwerger, editor of GoldStockTrades.com, "because it came on decreasing volume ...[and] lower momentum."
Handwerger says the next few trading days will determine if gold will continue its uptrend or follow a head-and-shoulders pattern, something many technical traders have been looking for which would indicate a trend reversal and lower prices.
Afshin Nabavi, head of trading at MKS Finance said, liquidation has been occurring lately even when it may not be reflected in the price action. This selling has been absorbed by good physical buying, as well as investment demand due to this weeks’ flare-up in tensions between North and South Korea and European sovereign-debt worries, he said.
“There’s no inflation whatsoever,” said James Cordier, portfolio manager at Optionsellers.com in Florida. “There’s one less reason to buy gold.”
“Gold is giving back some of the flight-to-safety bid, “said Frank Lesh, a trader at FuturePath Trading LLC in
Chicago. “The Korean conflict hasn’t erupted into something bigger yet, and the euro has stabilized.”
“Gold prices may be nearing a short-term top,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago. “We wouldn’t anticipate safe-haven demand lasting much longer.”
The metal is forming a “head-and-shoulders” price pattern, which may indicate further declines, Pawlicki said.
Gold Future Outlook:
“Certainly some funds will be taking profits,” Spencer Patton, chief investment officer with the hedge fund Steel Vine Investments said. “So you will probably see those (long positions of) large specs’ decline into year-end. But at the same time, I think you’re going to see it replaced – (although) maybe not entirely – by individual investors.”
Patton said he would expect “very good support” for gold to emerge should the market correct back to $1,300, but added that he does not expect it to get this low.
“I think that would be a great buying opportunity,” he said. “I don’t think it’s out of the question that we could be back above $1,400 by year-end.”
The market will be watching to see how many traders roll forward positions in the December contract, ahead of first notice-day next week, into February futures, said Afshin Nabavi, head of trading at MKS Finance. Some may instead opt to square up ahead of the delivery period.
“You can’t rule out more (liquidation),” Frank Lesh, analyst with FuturePath Trading said. “But on my end in the futures world, it seems as if we’ve seen a lot of that (already). A lot of big traders and funds—and big money in general—have started to shut down their books for the year. They’ve had some good gains not only in commodities, but in S&Ps and Treasuries, too.”
Lesh cited other factors that could keep gold range-bound in the near term. Commodities generally have been hampered by an expectation for further Chinese monetary tightening. Conversely, gold was supported when North Korea fired artillery toward South Korea this week, Lesh said.
Lesh listed the $1,340s to $1,390s in the December futures, with the range for February comparable since it has only a $2 premium to the December.
MF Global analyst Tom Pawlicki looks for gold to be sideways or possibly even softer for the remainder of the year, particularly now that the seasonal buying period has ended in India and U.S. Christmas jewelry sales could be slow due to high prices. However, he said, gold could pick up again early in 2011 when higher trading volume typically returns, with the metal helped by factors such as low interest rates that mean a “low opportunity cost” in which traders are not missing out on high yields elsewhere by holding gold, as well as U.S. quantitative easing.
Zachary Oxman, managing director of TrendMax Futures does look for gold to reclaim $1,400 by year-end, commenting that European debt issues “are not going away any time soon.” However, he said, he no longer
looks for $1,500 before Dec. 31 after the recent correction – “not because anything has changed fundamentally, but because of the rotation we saw out of those markets.” Still, he said, “I think the risks favor moving up from here versus moving down from here.”
"Given the more cautious mood amongst investors, gold will likely remain underpinned in the coming sessions," says James Moore, research analyst at thebulliondesk.com. "[The metals] remain vulnerable to bouts of long liquidation."
Technical analysis (by Jim Wyckoff):
Technically, December gold futures prices closed nearer the session low Wednesday. The bulls still have the solid near-term technical advantage. A four-month-old uptrend is in place on the daily bar chart.
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 $1,340.00. First resistance is seen at this week's high of $1,382.90 and then at $1,388.10.
Support is seen at Wednesday's low of $1,368.70 and then at $1,360.00.
Wyckoff's Market Rating: 7.0.
Daily Gold and Silver Expected Range:
Gold: US$1360- $1385
Silver: US$27.00 - $28.10
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