Gold Ended Marginally Lower as Improved Risk Appetite Reduced Safe Haven Demand
| 03 Dec 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1395 | 1404 | 1410 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1379 | 1373 | 1363 |
| Today’s pivot point US$ | 1389 | | |
The Day’s Story:
Gold ended marginally lower on Thursday after rising within a striking distance to $1400 level but failing to break above it, as safe-haven buying faded after European lenders offered a liquidity safety net for vulnerable banks and as upbeat U.S. economic data boosted risk appetite among investors. Profit takers drove prices below break-even point late in the session despite weaker U.S dollar which fell for second straight day against basket of six major currencies. Earlier gold was supported by news that gold imports soared in the first 10 months of the year to 209.72 tonnes in China, the world's second biggest gold consumer. Better-than-expected retail sales for November as well as a 10% surge in existing home sales in October improved risk appetite and led traders' flight into stocks. Gold futures for most actively traded February contact inched higher by $1 to settle at $1389.30 an ounce. Gold is up by 26% this year and looks set to post its 10th annual gain. Gold has outperformed stocks, currencies and most commodities this year so far.
U.S indexes extended their gains from previous session at the back of positive retail data from U.S and ECB plan to extend liquidity measures. The Dow Jones industrial average soared 107 points or 1% to close at 11,363. The S&P 500 jumped 15 points or 1.3% to 1,221. The NASDAQ added 30 points or 1.2% to 2,579. Retail sales data from some big name stores surprised investors with stronger than expected sales figures in month of November giving them taste of holiday shopping season ahead. In a separate report, the National Association of Realtors said its pending home sales index surged 10.4% in October after slipping 1.8% in September. Traders ignored disappointing initial jobless numbers which rose more than analyst expectations. Stocks in Europe also finished strongly with Britain's FTSE 100 rising 2.2%, the DAX in Germany added 1.3% and France's CAC 40 ticked up 2.1%.
European Central Bank President Jean-Claude Trichet said the ECB would keep providing banks unlimited liquidity well into next year, but it did not commit to a major bond-buying program to contain the euro zone crisis. "The [announcement] was largely expected, but there's a bit of relief in the market that they aren't withdrawing liquidity," said Ryan Atkinson, vice president at Balestra Capital. "There's a feeling that the
monetary authorities can support the [debt] issue, and for the time being that's all investors need."
The Friday Non-Farm payroll report which is arguably the most Important economic report for financial markets will give further clues about U.S jobs market which is still hovering near double digit unemployment rate despite official data indicating U.S economy out of the recession. Market is expecting non-farm payroll numbers to rise by 165,000 in November. Better than expected numbers could help stocks to resume their uptrend enabling bullion to tag along as well. A disappointing jobs figure could trigger safe haven buying interest in gold so gold may remain supported regardless of the outcome on Friday.
Gold price was boosted by Federal Reserve’s $600 Billion QE2 package in early November and crossed above $1400 on November 8th as a reaction to that move. Price peaked to its all time high of $1424 but have since corrected around $100 as bullion lost its momentum and struggled to push prices any higher. After entering a shallow correction, gold found support at the back of European debt contagion fears. Further support came as tensions between North and South Korea escalated after North attacked a South Korean Island killing four marines. Although gold has cut most of its losses in last few sessions but remain subdued due to concerns that China may raise its interest rate to curb rising inflation. Past couple of sessions also saw gold losing its safe haven appeal due to a boost in investors risk appetite as economic outlook improved.
U.S. dollar index ended weaker for second day in a row as improved economic outlook boosted investors risk tolerance. Dollar’s safe haven appeal took a hit due to improved global economic outlook as investors put aside European debt worries after an encouraging statement from ECB President Trichet. Technical analysts suggest the dollar index has put in a near term market low due to a boost in its safe haven demand at the back of crisis in Europe. Gold which rose close to 1% during the session pared all its gains despite weaker dollar which normally is supportive for gold prices due to their inverse correlation which has had a bumpy ride in recent weeks since European debt crisis drew attention once again.
Any relief in euro crisis, similar to what were seen on Thursday, 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 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.
Gold price extended its gains from previous session on Thursday during early Asian trading hours. Gold remained buoyant throughout Asian session. Bullion came under mild selling pressure as markets in Europe
started their trading day. Gold found fresh buying support as markets in North America opened for their
trading day. Latest round of buying sent prices to intraday high of $1398.3 an ounce just before mid U.S session. Gold price quickly lost all of its intraday gains and fell back into negative territory reaching its intraday low of $1382.7 an ounce during final hours of the session and closed its day at $1385 an ounce.
Other Metals:
Silver futures for March delivery closed up 16 cent to $28.57 an ounce on Thursday.
Platinum futures for January delivery rose by $29.10 to $1,713.10 an ounce on NYMEX.
Palladium futures for March delivery rose by $31.40 to $763.70 an ounce.
N.Y. Copper for March delivery closed up 3 cents to $3.98 a pound on Thursday.
Gold (News and Views):
February Comex gold closed up $1.00 at $1,389.30 an ounce on Thursday. The London P.M. gold fixing was $1,389.00 on Thursday compared to its previous P.M fixing $1,385.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1293.891 tons on December 01 up from 1286.603. The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 0.45 to 80.25 on Thursday. Crude Oil for January delivery fell $1.25 to $88.00 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. Speculative trading activity in some Commodity Futures Trading Commission reports shows these participants increased net-long positions in gold and silver, halting a slide seen in the past several weeks. Gold assets in exchange-traded products rose 7.65 tons to 2,094.48 tons yesterday, the highest amount since Oct. 27,according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,104.65 tons on Oct. 14. Silver investments gained 71.45 tons to 14,851.49 tons, data from four providers show.Factors Affecting Gold Price Yesterday:
"In gold, you are seeing some traders who are reallocating to other markets due to strength in stocks after indications of improving economy," said George Gero, precious metals strategist at RBC Capital Markets.
"There's obviously been a bit of ECB: 'what will they do/how will it help sovereign risk fears in Europe', but we've still got concerns on Portugal and Spain and I think those will linger which will sustain those inflows into ETFs (exchange traded funds)," said Michael Lewis, analyst at Deutsche Bank.
"The recent breakout after the Federal Reserve meeting was not really a strong breakout," says Jeb Handwerger, editor of goldstocktrades.com. "I thought it would be a fake breakout ... because of the negative divergence with momentum."
“It’s all about a weaker dollar today,” said Charles Nedoss, a senior market strategist with Olympus Futures in
Chicago. Gold inched up when the dollar saw some strength, and picked up when that strength died down, he said.
“Gold is still being drawn to the $1,400 psychological number,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.
Gold Future Outlook:
Barclays Capital says it is “most positive” on gold within the precious-metals sector for the near term due to sovereign debt risk, macro uncertainty, concerns over currency stability, medium-term inflation fears, geopolitical tensions and low interest rates. “Physical demand for gold has softened for seasonal reasons, but remains healthy for the time of year,” Barclays says. There is little central-bank selling and interest in exchange-traded products continues to grow. “We expect mine supply to rise modestly, jewelry demand to weaken but scrap supply to respond to higher prices, resulting in a notional gold surplus, which we expect to be absorbed by investment demand,” Barclays says.
Earlier Thursday, analysts at Goldman Sachs said gold futures are likely to peak in 2012 near $1,750 an ounce.
“As we look toward 2012, we find it timely to reiterate our view that at current price levels gold remains a compelling trade, but not a long-term investment,” the analysts said.
Next year, gold is expected to continue to rally towards Goldman’s 12-month target of $1,690 an ounce as low U.S. interest rates are likely to continue, the analysts said.
China’s growing importance to the gold market was underlined by news that Chinese imports of the metal climbed almost 500% in the first 10 months of the year, compared to all of 2009, say analysts with GoldCore in a research note. The Chinese are buying the metal as a store of value due to concerns about inflation and depreciation of their currency, GoldCore says. “Most of the 1.3 billion people in China only began to acquire and own gold in 2003 as gold ownership was banned from 1945 to 2003,” GoldCore says. “The gold market was liberalized in 2003 and their demand is increasing from a near zero base. This means that the increase in demand is very sustainable and will likely continue. Concerns of an overheating economy, inflation and a housing bubble will lead to further Chinese diversification into gold.”
Technical Analysis (By Przemyslaw Radomski):
Speaking of gold, let's take a look at its long-term chart (charts courtesy of http://stockcharts.com)
One the below chart, we have a major development worth noting. The consolidation period is now visible here as it has been ongoing for nearly 2 months. It began back in October after gold reached the upper border of the very long-term trading channel.
It is possible that we will now see gold’s price break out above recent price levels and the $1,600 target level remains valid. This target is obtained reached by analyzing the 1.618 phi number and extrapolating the upper border of the accelerated trading channel (marked with a red ellipse on the above chart).
With all of these bullish signals present, let's consider what could invalidate them.
Gold’s short-term chart at first glance appears to reveal a possible bearish head and shoulders formation. This is however not yet confirmed. When such a situation arises, it is important to study recent volume trends. What we have seen lately is strong volume with rising prices and lower volume when prices decline. For this reason, the bearish head and shoulders pattern should not be of major concern today.
Gold’s price has been stopped recently at the intersection of several resistance lines but daily volume levels and other signs indicate gold’s next move is likely to be up. Such a move would immediately invalidate the
bearish head and shoulder’s pattern and would likely result in a suggestion on our part to increase speculative positions in gold, silver, and mining stocks.
Daily Gold and Silver Expected Range:
Gold: US$1370- $1405
Silver: US$27.90 - $29.35
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