News and gold strategy

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Gold Upward Momentum Continues for Fourth Straight Session

Gold Ended Higher in a Volatile Session

20 Dec 2010	1st resistance	2nd resistance	3rd resistance
Today’s resistance US$	1381	1387	1395
	1st support	2nd support	3rd support
Today’s support US$	1366	1358	1352
Today’s pivot point US$	1373

The Day’s Story:

Gold finished with modest gains on Friday in a pre-holiday thin trade with prices trading both side of zero line. Gold gains came at the back of strong physical demand from Asia and ongoing debt concerns in euro zone as Moody’s downgraded Irish bonds and maintained negative outlook for Irish economy. Traders sold precious metal for most part of last week ahead of the holiday season but a major pullback in prices was also met with bargain hunters who do not miss any opportunity to own bullion at discount prices. Another factor that contributed this week's volatility was expiry of stock index futures, index options, stock options and single stock futures contracts on Friday. Last week gold traded in the range between $1361 & 1408 and many analysts believe gold to move between its recent trading zone until end of this year. Some analysts are however, predicting price to fall down to $1339 according to Fibonacci levels on charts. After an upbeat start, gold finished its week with loss of 0.9%.

Stocks in U.S closed with little change to their closing prices in a quiet session as traders are not willing to commit their money prior to festive season. The Dow Jones closed down 7 points at 11491.91; S&P 500 finished 1 point higher at 1243.91 while NASDAQ edged up 5 points to finish its day at 2642.97. In the absence of any market moving economic data, traders welcome the signing of tax cut bill into law by President Obama. The $858 Billion bill was approved by House of Representatives on Thursday. The index of leading economic indicators (LEI) data for November revealed a jump of 1.1%, after edging up 0.4% in the prior month. Economists had been expecting a 1.2% increase. Stocks in Europe however, closed lower with Britain's FTSE 100 closing slightly down by 0.2%, while DAX in Germany fell 0.6% and France's CAC 40 closed in red by 0.2% to finish the day.

Eurozone debt crisis continued to make headlines on Friday providing some support to bullion prices as result which has been the case for most part of this year.  Moody's downgraded Ireland's government bonds by five marks and maintained a negative outlook, which means that further downgrades are possible. At the final European Union summit of the year, leaders agreed to provide a permanent crisis lending facility starting in

2013 after the temporary one expires, but more radical measures to help short-term problems weren't agreed upon. On the other hand, China’s expected move to hike its key interest rate also remains a lingering worry for gold bulls as any such move by China before year end will be bearish for gold. Analysts however, believe that a rise in interest rate will cause short term correction and will not affect gold prices to a great extent. There are signs that monetary policy might not be as tight as feared. China will probably target about 7.5 trillion yuan ($1.1 trillion) in new loans next year, level with its 2010 target, a leading official newspaper said. In a separate development, The Commodity Futures Trading Commission agreed to position limits Thursday as part of its job in interpreting the Dodd-Frank financial reform legislation which could force participants to look elsewhere as a result of this ruling.

U.S. dollar index ended its day with modest gains against basket of six major currencies. Dollar came off its earlier highs in final hours of the session as the U.S. trading session wound down, and Treasury yields sank. Euro came under severe selling pressure after news of Irish bonds downgrade but pared some of its earlier losses at the end of the session. U.S dollar’s recent gains are partly because of market’s realization that U.S economy’s outlook in 2011 will be improved as stronger economic reports in recent weeks lifted investors’ confidence. Dollar’s advances earlier in the session weighed gold prices but both ended in positive territory to finish the day. Dollar’s 5 week uptrend on charts is still in place due to some fresh upside momentum gained in last 3 sessions.

Gold and dollar’s inverse correlation weakened on Friday in not so unusual move as both moved in the same direction.  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 and continued to make its way up during first session of the day in narrow trading range. Gold hit its intraday peak of $1378 an ounce in early hours of European trade

but pared those gains as European session progressed. Gold fell into red zone just before markets in North America started their trading day. Bullion’s losses were deepened in the early hours of U.S session and price

fell to its intraday low of $1364.8 an ounce. Gold managed to pare its intraday losses during later part of U.S trading hours and landed in positive territory once again. Gold finished its day with modest gains at $1375 an ounce.

Other Metals:

Silver futures for March delivery closed up 35 cent to $29.13 an ounce on Friday.

Platinum futures for January delivery fell $0.10 to $1,698.50 an ounce on NYMEX.

Palladium futures for March delivery fell $3.95 to $738.60 an ounce.

N.Y. Copper for March delivery closed up 4 cents $4.16 a pound on Friday.

Gold (News and Views):

      February Comex gold closed up 8.20 at $1,379.20 an ounce on Friday.

      The London P.M. gold fixing was $1,368.50 on Friday compared to its previous P.M fixing $1,363.00.

      The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1298.940 tons on December 17 up from 1283.757 on December 16th.

      The dollar index, which measures the U.S. currency against a basket of six major currencies, rose by 0.34 to 80.36 on Friday.

      Crude Oil for January delivery rose by $0.32 to $88.21 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:

There is some bargain-hunting in relatively thin trade. The holiday is coming, and the liquidity will remain thin. So a small amount of buying will trigger a few dollars' move. I won’t read too much into the move," said a Hong Kong-based trader.   

“One of the main drivers [for gold] was the euro,” said Afshin Nabavi, head of trading at MKS Finance in Geneva.

“There are a lot tensions right now with Europe and the problems they have,” he said.

But providing support, he said, was “relatively good buying interest from India and the Far East” as buyers took advantage of two days of falling prices.

“Markets are thinner than they have been any time since the end of 2008,” noted Jay Feuerstein, chief investment officer for 2100 Xenon, a commodities trading adviser in Chicago.

“A lot of strategies have wins in them, and are going home with them. That’s making things thinner and a little more volatile as we get to the second half of this month.”

Gold prices broke a key support level of $1,370 on Thursday but managed to attract some buyers to close at $1,370 an ounce. Jon Nadler, senior analyst at Kitco.com, says this recent rally has been momentum driven

and "we could be looking down into the $1,320-$1,350 as a first target." Nadler does not expect bullish sentiment to return "unless gold takes out its previous pinnacle of about $1,430."

Gold Future Outlook:

“Gold is probably going to stay where it has been. It’s still attractive because people don’t know where else to go,” said Rich DeFalco, president West Cooper Asset Management. “It’s still a protector from inflation and we just don’t know what’s going to happen.”

The technical signals for spot gold show it is expected to fall to $1,339 per ounce next week, based on a Fibonacci retracement analysis, said Wang Tao, a Reuters market analyst.

The metal has been viewed as the “ultimate currency,” often rising even on days when the dollar strengthens, said Bill O’Neill, one of the principals with LOGIC Advisers. This frequently occurs when European debt concerns rattle investors.

“There is no great desire from large investors in particular to hold any currency,” said O’Neill, who looks for $1,600 gold next year. Many central banks are adding gold to their reserves, he said. Also, governments and central-bank moves to pump money into the economy have fuelled fears of inflation, which supports gold.

Mark Leibovit, publisher of the VR Gold Letter, said while long term he’s bullish on gold, in short-term trading, the decaying price and declining volume in gold has him cautious.

He pointed to gold’s key reversal on Dec. 7 when it made an all-time high and closed under the previous day’s low, a sign of a short-term top in technical-chart analysis. Volume is also declining in futures and exchange-traded funds.  While he’s not gotten short, he’s not buying either. He would rather buy it “under the market” and wait for a sign that a bottom is in.  One of those signs would be if volume shifts.

“Sometimes these little tops can become bigger signs, but you just don’t know that. I’d be a little nervous being long right here. But that doesn’t mean I’m selling the coins in my vault,” he said.

Daily Gold and Silver Expected Range:

Gold: US$1358- $1390

Silver: US$28.65 - $29.85