Gold Upward Momentum Continues for Fourth Straight Session
Gold Rallied for Second Day as Data Favored the Precious Metal Prices
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1 Nov 2010 1st resistance 2nd resistance 3rd resistance
Today’s resistance US$ 1366 1375 1391
1st support 2nd support 3rd support
Today’s support US$ 1342 1327 1318
Today’s pivot point US$ 1351
The Day’s Story:
Spot gold continued to rally for second day in a row as U.S dollar gave away most of its ground it gained in last few sessions. Gold gains came ahead of eagerly anticipated FED’s meeting on Wednesday soon after U.S mid-term congressional election in which details of much anticipated fresh round of stimulus package will be announced. Gold fell down to $1314 last week after peaking to its all time high of $1387 an ounce a week earlier mainly due to much needed correction and at the back of short covering rally in U.DS dollar. Gold rose 2.5% this week, rebounding from losses of 3.4% the previous week and posting its 12th weekly gain in last 13 weeks. Gold rose by 3.7% in the month of October followed by a jump of almost 5% in September and 5.6% in August. Gold is up 25% this year and looks set for its 10th annual gain.
Major U.S equity indices ended flat in a lackluster trading action as investors await what is going to happen in next week’s election and Fed’s decision to inject more money to jump start the economy. Data from the Chicago Purchasing Managers Index showed that manufacturing activity in the Chicago area turned out better than economists had forecast. The readings came in at 60.6 in October versus 60.4 in September and compared with the consensus reading of 58 among economists. University of Michigan consumer-sentiment index fell to 67.7 in October from 68.2 the previous month. Earlier, reaction to U.S 3rd Quarter GDP numbers was muted as it came pretty much in line with market expectations. According to economic department, U.S economy grew by 2% in 3rd quarter but failed to bring unemployment down. It was a similar picture across Atlantic where major stock indices also finished flat to little changed on Friday.
Analysts’ are concerned about amount of money to be employed by FED in an effort to help sustain economic recovery as it could disappoint investors who have already gone on buying spree in anticipation of Trillions of dollars of fresh round of monetary easing. Last week report in Wall street Journal however, contradicted market perception and revealed that FED may employ much smaller QE2 measures stretched over several months. In such a scenario we may see gold to give away some of its recent gains as much of QE2 is already factored in the price according some market analysts although Bullion’s outlook remains bullish due to certain
other factors. One of the main concerns will be heightened inflation caused by new money.
U.S dollar remained under selling pressure but ended flat helping gold to climb closer to its all time high set couple of weeks ago. Although GDP data did little to move greenback but U. of Michigan disappointing numbers triggered further buying helping gold to climb above $1350 level for the first time in two weeks. Gold and dollar inverse correlation has been close to its strongest level in a year after an erratic first six months of this year when both moved in the same direction mainly due to European sovereign debt problems. Both have since maintained their organic inverse correlation relationship as fears over European debt problems have abated. For a short-term gold price largely depends on outcome of QE2 and dollar movement as a result of that.
Gold price came under selling pressure during early Asian trading hours and continued to slide throughout the session. Gold remained pressured during early European session and fell t its intraday low of $1335.5 an ounce. Gold fate was changed by mid European session ahead of U.S economic data. Gold pared all its losses just before GDP numbers were announced. Initial reaction to GDP numbers was rather muted but as data from University of Michigan Consumer Sentiment fell below expectation, gold bulls had a lot to cheer about. Gold price rocketed during early part of U.S session and jumped above $1350 level, peaking to its intraday high of $1359.5 an ounce and closed just below its session high at $1358.3 an ounce.
Other Metals:
Silver futures for December delivery closed up 69.0 cent to $24.56 an ounce on Friday.
Platinum futures for January delivery rose by $15.10 to $1,707.10 an ounce on NYMEX.
Palladium futures for December delivery rose by $15.65 to $645.10 an ounce.
December N.Y. Copper closed down 5 cent $3.73 a pound on Friday.
Gold (News and Views):
December Comex gold closed up $15.10 at $1,357.60 an ounce on Friday.
The London P.M. gold fixing was $1,346.75 on Friday compared to its previous P.M fixing $1,333.50.
The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings stood at 1299.177 tons on October 26 unchanged from previous day.
The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 0.15 to 77.14 on Friday.
Crude Oil for October delivery rose by $0.75 to settle at $81.45 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.
The International Monetary Fund sold 1.04 million ounces (32.3 tons) of gold in September, nearly a third of it to Bangladesh, an IMF spokesman said on Friday.
Hong Kong trade data showed the flow of gold from Hong Kong to China in the first eight months of 2010
nearly double that for the whole of 2009, suggesting surging appetite for jewelry and investments.
Factors Affecting Gold Price Yesterday:
Jitters about suspicious packages in Britain and Dubai after U.S. and British security officials searched United Parcel Service cargo flights also prompted buying of gold.
"It appears these suspicious packages found on the U.S.-bound cargo planes were responsible for the gold rally," said Bruce Dunn, vice president of trading at bullion dealer Auramet.
Investors often turn to gold as a safe haven in times of geopolitical and economic uncertainty.
Dunn said technical buying emerged after prices broke above$1,350 an ounce, a level where gold ran into resistance this week. U.S. mid-term election and the Federal Reserve meeting next week also triggered short-covering, he said.
“The market is anticipating and pricing for another round of easing,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “What stops the rally is if the Fed just talks. There has to be some tangible evidence the Fed is in the market buying back bonds to underpin the rally.”
“There’s a lot of fear out there,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “When traders hear about bomb scares, they buy gold first and ask questions later.”
"The GDP numbers (at least initially), had an opposite and counterintuitive effect on the U.S. dollar and helped bullion advance a bit nearer to the $1,350.00 mark in another manifestation that players expect that nothing short of spectacular economic recovery data will temper the Fed's accommodative stance and the size of the 'package' it may intend to deliver next week," Kitco analyst Jon Nadler said in a daily note."
Steady buying to fund new ETF listings in gold, copper, silver, palladium and platinum all at once added to the continued investment demand today," added RBC Wealth Management senior vice president and financial consultant George Gero in a daily note.
Gold Future Outlook:
Ron Coby, co-founders of Coby Lamson Capital Management and a commodity trading advisor, said the dollar could be getting ready to set a bottom, and if that is the case, many financial markets – precious metals included – will reverse. “We don’t have any signals yet, but we’re set up for it. If the Fed does not deliver what the market is expecting next week – or even if they do – we think there will be selling on the news, sort of a ‘buy the mystery, sell the history’,” he said.
Coby said he’s bullish on gold, but said the market could see a pull back because so much anticipation of quantitative easing by the Fed at the end of the Nov. 3 meeting is priced in. “We have hedged all of our longs. We’ve cut back to a core position in gold. Anything can happen, so we want to see how the market reacts,” he said.
"The Fed meeting next week has been dominating the markets," said Standard Bank analyst Walter de Wet.
"We think the gold market has priced in around a $500billion QE exercise by the Fed," de Wet added. "If the Fed comes out with a higher figure, we think gold will move higher. If it's lower, it is going to be bearish for gold."
Tom Pawlicki, analyst at MF Global, said ahead of the U.S. election and the FOMC meetings next Tuesday and Friday, respectively, gold prices will likely keep a rough trading range of $1,315-$1,350. “Pressure will come from the possibility that the new Congress focuses on spending reductions, the likelihood that the FOMC conducts a smaller QE2 package than anticipated,” he said.
Aside from the activity in the U.S., some support for gold could come from the beginning of festivals in India, Pawlicki said. Dhanteras takes place on Friday and Diwali is on Friday and Pawlicki said demand is expected “to be strong based on a favourable monsoon and high global prices for food commodities grown in India. Farmers should be flush with cash and able to take advantage of the recent drop in gold prices.”
Barclays Capital said they expect the FOMC to issue a second quantitative easing round and announce $100 billion of asset purchases per month while the Bank of England and European Central Bank remain on hold.
Regarding the election and the impact on the dollar, if the Republicans take the House and reduce the Democrat majority in the Senate, it would be in line with financial market expectations and have little dollar impact. Barclays said ultimately the impact on the dollar is likely to be the same whether there are more Republicans in Congress or a continued Democratic majority.
Gold Core said if the Republicans do make gains in Congress, generally it hasn’t favored the yellow metal. “Gold has performed better during periods of Democratic power as they have traditionally been less fiscally conservative than their Republican rivals. However, in recent history, Republicans under George Bush spent money in a manner that would make a drunken sailor proud. The fiscal challenges facing the U.S. are of a magnitude that no matter which party comes out on top in next week's mid-term elections, gold is likely to remain robust for the foreseeable future,” they said.
Leonard Kaplan, president, Prospector Asset Management, said elections aside, gold and precious metals in general will stay supported as long as interest rates remain low. “When China raised their interest rates a quarter of a percent, gold fell $30. When the U.S. and Europe start to do this, prices will fall. But it might be years and years until that happens.”
Technical Analysis (by Jim Wyckoff):
Daily Candlestick chart shows gold prices bouncing off support from rising trendline.
Price has broken above Bollinger middle band and aiming towards Bollinger upper band which has turned neutral, sitting at $1378 level.
RSI has also rebounded from 50 level and sitting between 50 & 70 levels but off its overbought levels.
MACD study which favored the bullish move until few days ago and was well established in bullish zone
indicates a trend reversal and heading towards Zero line. Trend reversal can also been seen by reduced histograms.
Slow Stochastics which broke down badly and gave false signals while at the top of the trend in last few months have accelerated away from oversold area. Stochastics which are more sensitive to price action than RSI and rather lagging MACD indicator signaled that price correction was over, painting a rather conflicting picture.
Keep an eye on dollar move for further clues as inverse correlation between gold and dollar has been the strongest in a year.
Gold has ignored a lot of strong reversal signals on charts mainly due to certain other factors affecting the price. Keeping recent price history in view, it is strongly recommended not to rely on charts alone and mix your technical analysis with fundamentals appropriately for better results.
Daily Gold and Silver Expected Range:
Gold: US$1346- $1378
Silver: US$25.32 - $24.25
