Gold Ended Unchanged as Traders Stayed on Sidelines Ahead of Xmas
23 Dec 2010 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1390 | 1394 | 1398 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1382 | 1378 | 1373 |
Today’s pivot point US$ | 1386 |
The Day’s Story:
Gold finished its day almost unchanged in extremely quiet trading session on Wednesday as traders stayed away from precious metal ahead of Xmas holiday period. Gold’s gains were limited by firmer dollar which bounced back from its earlier losses after better than expected Home sale numbers. Gold found some ground at the back of revised GDP numbers for U.S which fell short of analysts’ expectations. Expect another quiet session today as most traders have Xmas on their minds than anything else and will probably stay away from their trading desks as we approach closer to long weekend. Yellow metal looks set to finish the year with around 25-30% of gains outperforming stocks, currencies and most commodities, answering the critics who did not see any value in precious metal. Most of its gains came amid low interest rates in U.S, rising commodity demand in China and debt crisis in Euro zone.
Stocks in U.S ended with modest gains after trading in a narrow range throughout the session ahead of holiday period and finished at their fresh two year highs Wednesday. The Dow Jones closed up 26 points at 11459; S&P 500 finished 3 point higher at 1258 while NASDAQ gained 4 points to finish its day at 2671. Investors showed little reaction to U.S 3rd Quarter revised GDP figures which revealed economy grew at the pace of 2.6% up from earlier reading but fell slightly short of market consensus of 2.7%. After opening bell a report showed that old home sales grew by 5.6% in November which was better than expected outcome and gave investors a reason to stay bullish on stocks. Volume remained low as most traders have already closed their books for the year and ready to leave for holiday. Stocks have already gained 5% this month with S&P500 and NASDAQ rising for 14 out of 16 sessions this month so far and are set to record double digit gains for the year. Looking ahead, traders are optimistic about 2011 and see further gains in months ahead. Stocks in Europe however, were mixed with Britain's FTSE 100 closing up by 0.5%, while DAX in Germany ticked down 0.1% and France's CAC 40 closed with the losses of 0.2% to finish the day.
Gold prices got some support from news that the International Monetary Fund has completed the sale of 403 tons of gold originally announced in September 2009. Many analysts had been worried that a large
gold sale would lead to an oversupply in the market and lower prices. In general Simmering concerns over euro zone debt levels after recent warnings from credit rating agencies on some euro zone economies have supported safe-haven demand for the precious metal in recent sessions, but prices were underpinned by the IMF's announcement of the completion of the massive gold reserve sale it began a year ago.
U.S. dollar index continued erased its earlier losses and finished just below its previous close. China announced it would buy €4-5 billion in Portuguese bonds, according to reports. China in recent years had been selling euros for dollars but changed its tune Tuesday when the country announced it would support the European Union's fight against sovereign debt. The news was dollar bearish and sent greenback into red zone but later housing report helped dollar shrug off its intraday losses. Dollar’s move limited any upside in gold’s prices as well. Euro gave away its entire intraday gains against is main rival in the later part of the session. Gold and dollar’s inverse correlation weakened further on Wednesday as both moved in the same direction for fourth straight session. Correlation between two assets has been erratic this year as both broke away from their organic inverse correlation relationship several times this year mainly due to heightened economic worries at the back of Euro zone debt crisis. Any relief in euro crisis, similar to what were seen during last couple of weeks, will push the euro higher and the dollar lower and be good for gold, as the two move inversely to each other. If a debt crisis flares up again and default is floated as an option for some countries, the euro could plummet in value and take gold with it. Safe haven buying, however, should create a floor of support for gold prices.
Gold prices could be more volatile towards the end of the year (similar to what we have been seeing in last few sessions) as profit-takers contend with "bargain-hunters" and those wanting to add gold to their portfolio before the New Year. During December, those traders selling gold future contracts must also deliver physical gold and the longs must pony up the cash which increases liquidity and volatility in the market. However, the end of the year traditionally brings with it less liquidity and greater potential for rapid shifts in price direction, meaning that gold could endure more setbacks before resuming its uptrend.
Yesterday’s Price Action:
Gold price started its Asian session with minor gains but went quiet as session progressed. Gold was trapped in a tight range throughout Asian trade. Gold reacted in similar manner with the start of the European session and remained stuck in its narrow intraday range. Gold peaked to its intraday high of $1390.9 an ounce by mid European session. Gold price came under some selling pressure as market in U.S opened for their trading sessions and economic data started filtering in. Gold fell to its intraday low of $1382.9 in the final hours of the session after spending most of U.S session without any particular direction and amid extremely thin volumes. Gold finished its day a tad lower at $1385.1 an ounce.
Other Metals:
Silver futures for March delivery closed down 1 cent to $29.38 an ounce on Wednesday.
Platinum futures for April delivery rose by $8.90 to $1,736.00 an ounce on NYMEX.
Palladium futures for March delivery rose by $2.10 to $755.15 an ounce.
N.Y. Copper for March delivery closed up 0.5 cent $4.2750 a pound on Wednesday.
Gold (News and Views):
February Comex gold closed down 1.40 at $1,387.40 an ounce on Wednesday. The London P.M. gold fixing was $1,387.00 on Wednesday compared to its previous P.M fixing $1,383.00. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1298.029 tons on December 21 down from 1298.940 on December 17th. The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 0.04 to 80.65 on Wednesday. Crude Oil for January delivery rose by $0.66 to $90.48 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. One of the biggest buyers is China. Over the past five years, the country secretly increased its gold holdings from 600 tons to 1,054 tons. China currently holds only 1.6% of its reserves in gold. In the third quarter, purchases by central banks outweighed sales by 21.9 tons according to the World Gold Council. Eurozone banks held on to their gold while Russia bought 46.2 tons, Philippines bought 4.2 tons, Thailand added 15.6 tons to its reserves and Sri Lanka increased its holdings by 6.9 tons. The IMF sold about 403.3 metric tons, or 13 percent of its reserves, in a program that began in September 2009, the Washington-based group said yesterday. The total amount sold was equal to about 15 percent of global mine supply, according to data GFMS Ltd., a London-based research company. Factors Affecting Gold Price Yesterday:
“The market is due for a correction,” said Rich Ilczyszyn, senior market strategist for Lind-Waldock in Chicago.
“If you haven’t got gold on now, you’re probably not buying it here, ‘til year end you’re probably taking profits, looking to other markets to reposition,” he said.
“Given the thin conditions and proximity to year-end there is the risk of profit taking across the metals,” said analysts at FastMarkets.
“The IMF gold sales have not affected gold prices, which is to be seen as a sign of relative strength, especially as half of the sales were via the market,” says Commerzbank. For now, the metal is consolidating, with support continuing to come from the euro-zone debt situation and tensions on the Korean peninsula, the bank says.
“Outside of the IMF sales, little other selling has materialized with the Euro-system banks selling remaining subdued,” Cooper said. “Gold’s price reaction was muted in response to the news, but in the absence of the IMF sales, the sector is set to swing into a net buyer of gold.”
Gold Future Outlook:
Analysts said they expect gold to hold within its $1,360 to$1,400 an ounce range for at least the rest of the
year.
"People have found somewhat of a comfort level here. There is still big resistance at $1,400 and support around $1,350 to$1,360. Until we get a new impetus to move it one way or the other, I think it could hang around in this range for the rest of the year," said Donald Selkin, chief market strategist at National Securities Corp in New York.
Looking into 2011, he added that gold has a tendency to fall or stick within a sideways range for the first quarter of the year, and to make most of its up move in the second half.
"Many times holiday markets are choppy," says George Kleinman, president of Commodity Resource. Kleinman is still bullish on gold prices over the long term and thinks prices could hit $1,600 in 2011. For now though Kleinman says gold "has been in a downtrend that ended last week and the short term trend will probably chop around a bit with an upward bias."
For his part, Kleinman is sitting out the last two weeks of the year, preferring to eschew trading as volume deteriorates. "I don't see much happening in the next week or so" he says.
"Some banks," says Dempster, "have been rebalancing as the percentage of gold in total reserves has fallen over time. Others are looking to diversify away from dollar-based assets, and with sovereign debt concerns continuing to grow around the world, gold's attractiveness as a reserve asset that bears no credit risk continues to grow."
Technical analysis (by Jim Wyckoff):
Technically, February Comex gold futures bulls still have the overall near-term technical advantage. An overall 4.5-month-old uptrend is in place on the daily bar chart.
Bulls' next near-term upside technical objective is to produce a close above solid technical resistance at last week's high of $1,408.90.
Bears' next near-term downside price objective is closing prices below solid technical support at last week's low of $1,361.60.
First resistance is seen at this week's high of 1,393.00 and then at $1,400.00.
Support is seen at $1,381.40 and then at this week's low of $1,376.60.
Wyckoff's Market Rating: 7.0.
Barclays Technical Report:
Gold may climb to $1,480 an ounce, after breaking through record levels set this month, according to technical analysis by Barclays Capital.
A recent dip was a “healthy correction” and levels above the $1,350 area provided a base for gains to initial targets of$1,460 to $1,480 an ounce based on Fibonacci projections and rising trendline resistance, Barclays analysts wrote in a report dated Dec. 17.
Daily Gold and Silver Expected Range:
Gold: US$1375- $1402
Silver: US$28.70 - $29.92
