News and gold strategy

Gold Ended Sharply Lower Posting its Biggest Daily Loss in 4 Months

15 Nov 2010	1st resistance	2nd resistance	3rd resistance
Today’s resistance US$	1399	1430	1449
	1st support	2nd support	3rd support
Today’s support US$	1348	1329	1298
Today’s pivot point US$	1379

The Day’s Story:

Gold fell sharply on Friday, posting its biggest daily loss in 4 months due to Chinese rate-hike expectations after strong economic data from World's second biggest economy triggered a sharp selloff in commodities across the board. Euro zone debt problems which have resurfaced after Irish and Portuguese bong yields rising to record highs also fuelled profit taking which many would consider a healthy and much needed correction in gold and other commodities which have gone up too far too soon. Stronger U.S dollar was another factor which kept the gold prices in check throughout last week after it hit its all time high of $1424 an ounce. U.S dollar however, gave away some of its weekly gains against euro but gold was unable to capitalise on such move as investors cashed in some of their profits after recent gains. Gold is still up 27% this year and despite its second weekly lost in 14 weeks, looks set to post its 10th annual gain.

Stocks across the globe slid at the back of the news that china may raise its interest rate to control inflation after string of strong economic data which suggests the Chinese economy may be heating up. A rate hike would limit the flow of "free money" in the country which would give consumers less cash to buy gold. Investors were also disappointed once again with the outcome of G20 meeting as it failed to deliver any concrete measures to control exchange rates and sustain growth with differences between U.S and China widening over the valuation of their currencies. U.S main indexes ended deep in red with DOW finishing 0.8% lower while S&P500 trimmed 1.18% of its value. NASDAQ was the biggest loser on the day shrinking by 1.46%. U.S. equity indexes briefly trimmed losses earlier in the session as consumer confidence rose more than economists’ estimates. The Thomson Reuters/University of Michigan preliminary sentiment index rose to 69.3, the highest level since June, from 67.7 in October. With those losses U.S stock indexes ended their 5-week string of gains, it’s longest since April. Stocks in Europe shared the same fate and ended in red although they did come off their earlier lows. DAX was the only main index ending with marginal gains. Gold losses were deepened by the selloff in stocks sending it to below $1360 level during the session.

Market was keenly waiting for the outcome of G20 meeting in Seoul Korea by the end of the last week but was

left wondering with many unanswered questions as no specifics were outlined. G20 leaders closed ranks on Friday and agreed to a watered-down commitment to watch out for dangerous imbalances, yet offered investors little proof the world was any safer from economic catastrophe. Although leaders of G20 agreed to end currency manipulation to boost domestic growth but they failed to deliver a combined policy statement over currencies and trade imbalances. Economic uncertainty and currency fluctuation are two main catalysts for gold prices due to its safe haven status but now that gold has started to act as trading vehicle instead of long term investment it has become more sensitive to stock market moves. Friday sell off was driven by such a move as investors took some cash out of gold to cover losses at other places. Some sell stops were also triggered as losses deepened and bargain hunters who normally jump in at dips for rescue decided to watch from sidelines due to heightened volatility.

U.S dollar enjoyed another day of gains making it 5th up day in last six sessions. Dollar however, gave away some of its gains against European common currency which came back from its six-week low. Euro recovered as earlier rumours that Ireland may seek help from European Union for a bailout were denied by Irish government. While the inverse link between gold and the dollar took a massive hit last week as investors turned their focus to European sovereign debt problems, it resurfaced part-way through Friday's trade when the euro recovered some of its recent losses as roiling financial markets outweighed a move by European leaders to reassure nervous bondholders. Gold, a dollar-backed commodity, typically takes its cue from the dollar, and normally move in opposite direction although that trend can be broken on days like Friday, as a stronger dollar makes gold more expensive to buy in other currencies and vice versa. Some important data is due to be released this week with European Union trade balance and U.S October retail sale figures to start the week. Gold next price move will be determined by the combination of economic data, dollar movement and further news from Europe regarding its debt issues.

Gold price came under immense selling pressure right from the start on Friday and fell below $1400 during early Asian session. Gold losses were deepened as session progressed. Gold declines were halted as markets in Europe started their trading day and pared some of its intraday losses during early European trading hours. Gold prices were met with a fresh wave of profit taking as North American markets started their final session of the week. Gold fell deep into red territory hitting its intraday low of $1359.9 an ounce by mid U.S session. Gold prices recovered marginally towards the end of the session and finished its day with a loss of $40 at $1368.3 an ounce.

Other Metals:

Silver futures for December delivery closed down 146 cent to $25.94 an ounce on Friday.

Platinum futures for January delivery fell $61.20 to $1,684.60 an ounce on NYMEX.

Palladium futures for December delivery fell $30.50 to $673.65 an ounce.

December N.Y. Copper closed down 13 cents to $3.89 a pound on Friday.

Gold (News and Views):

      December Comex gold closed down $37.80 at $1,365.50 an ounce on Friday.

      The London P.M. gold fixing was $1,388.50 on Friday compared to its previous P.M fixing $1,398.50.

      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 0.47 to 78.15 on Friday.

      Crude Oil for October delivery fell $2.93 to settle at $87.81 on Friday 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.

Factors Affecting Gold Price Yesterday:

The dollar has been on an upslope this week as concerns over Eurozone debt, specifically Ireland’s woes, caused some investors to abandon riskier assets and return to the U.S. dollar, which lost a bit of its “unloved” status. Investors are very heavily short the dollar. Whether they are simply unraveling some of that bearishness or if the dollar is set for a change in direction, the greenback could rise a fair amount since it has been pummeled so much lately. That could pressure gold, analysts said.

One sign that gold’s recent rally might be due for a correction also came from the Comex exchange data. After setting a record high level in open interest on Wednesday, open interest from Friday fell. George Gero, vice president, Global Futures, RBC Capital Markets and precious metals strategist, said that means the rally came on short covering, rather than new buying, indicating there was less new business.

“We had quite a range in gold. Gold never came back off the bottom, and it’s been trading the dollar,” said Charles Nedoss, senior market strategists at Olympus Futures.

Commodities across the board were hit by worries over a potential Chinese rate hike. There was no actual rate hike, but after strong economic data out of the Asian nation Friday, analysts are beginning to ponder the chance of another hike. “Should it (a rate hike) indeed come to pass, (it) will likely trigger a substantial selloff in most commodity complexes, and likely spill over into the US equity market as well. Whether we are in the throes of such a correction remains to be seen, as we have seen previous selloffs come and go without making much of a dent in the overall rally,” said Ed Meir, analyst at MF Global. “…this is not an enticing environment for the metals rally to flourish in, and today’s selloff should be viewed as a shot across the bow in this regard.”

“I would call this pullback some froth being taken off the market,” said Julian Phillips, editor at GoldForecaster.com. “I do believe that a large number of short position holders were badly squeezed in the run-up too, [so] this current temporary pullback will be a consolidation period.”

Gold Future Outlook:

Mark Leibovit, chief market strategist at VR Gold Letter.com, said he sees gold and silver as having a short-term top. “We could be in a corrective phase, but it’s temporary. It could be a week, a month, or just a few days,” he said.

Support for gold is seen at $1,325, Leibovit said, with support for silver is at $25 and then $19.50.

Leibovit said the short-term downtrend for gold could be in place until other technical chart signals suggest otherwise. “We’re still overbought. I’ll look for indicators such as being oversold, volume and upside reversal patterns” before considering the decline done.

He added that since gold and silver are in a seasonally strong time, downward price corrections could be short-lived.

Jon Nadler, senior analyst at Kitco.com, a gold believer but with a more conservative outlook, believes that without a real crisis gold prices are due for a deeper correction. "The going has gotten fairly tough around $1,425 or so ... these were largely sentiment and momentum-based gains ... The market I see is a market that believes it received a full $1 trillion from the Fed ... Basically we're not in crisis mode."

"Given the scale of gains posted over the past few weeks the metals remain vulnerable to a deeper correction as traders lock in profits and generate cash to cover margin requirements in other sectors," says James Moore, analyst at thebulliondesk.com, in his daily metals report.

Daily Gold and Silver Expected Range:

Gold: US$1350- $1397

Silver: US$25.06 - $27.00

Technical Analysis (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.