Gold Upward Momentum Continues for Fourth Straight Session
Gold Broke its Previous Record- Eyeing for $1400 As Dollar Slumped
05 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| 1408 | 1424 | 1455 |
| 1st support | 2nd support | 3rd support |
Today’s support US$ | 1361 | 1330 | 1314 |
Today’s pivot point US$ | 1377 |
|
|
The Day’s Story:
Gold price moved sharply high on Thursday in the wake of the news of FED’s $600 Billion stimulus package, proven to be a strong bullish factor for commodities. Gold advances were accelerated with dollar getting hammered, as more money in the economy means further devaluation of greenback and heightened inflationary concerns which are supportive for gold prices, considered as a hedge against currency devaluation and inflation due to its safe haven appeal. Gold price quickly recovered from its initial knee-jerk reaction to the FED’s statement on Wednesday and yesterday’s advance was gold’s biggest daily gain since start of 2009. Silver rose 6 percent to its highest level since 1980, palladium was up 4 percent at a 9-1/2-year peak and platinum reached its strongest price since 2008. Gold is up 28% this year, aiming for $1400 which is within striking distance and well on its way to post its 10th annual gain.
U.S stocks rallied and finished strongly with DOW Industrial peaking to its highest level since September 15 2008, one of the darkest days in Wall Street history when giant-Lehman Brothers’ collapsed. The Fed’s plan to buy $600 billion in bonds over a period of 8 months in an effort to keep interest rates near zero and induce more lending helped bolster optimism that the global economy would not deteriorate and corporate profits would increase. Historically, stocks markets have performed better in post midterm election months and we have seen the continuation of that trend in yesterday’s move. Market ignored worse than expected initial jobless numbers which rose by 20,000 surprisingly. In another report, labour market productivity in U.S rose by 1.9% in 3rd Quarter after a drop in earlier Quarter. Market has turned its focus at Today’s Non-Farm payroll report which could trigger some sharp moves in the prices to end an action packed week.
U.S dollar got battered on Thursday falling against all major currencies triggering a broad based metal rally. Greenback took a hit at the back of FED’s decision to pump more cash in the economy to help boost frail economic recovery. As mentioned in previous reports, market consensus was $500 Billion worth of stimulus
and anything below that would have been catastrophic for stock markets and commodities. As the figure came out more than market expectations, chances of an expected short-covering rally in U.S dollar abated as Fed’s
announcement added to investor worries that government efforts to drag developed economies out of the recession would lift inflation in the long term and devalue the U.S. dollar. Fall in greenback supported all U.S denominated assets as it makes them cheaper for holders of other currencies. Gold along with other precious metals and Crude Oil were main beneficiaries of dollar demise. The inverse link between gold and the dollar strengthened after the Fed announcement, Reuters data showed, with the hourly correlation between the two tightened to peak at a negative 0.66 on Thursday.
Gold price started its first session at front foot and quickly erased its previous session’s losses during early Asian trading hours. Gold went into quiet mode in later part of the Asian trading session but got a boost as markets in Europe started their trading day. Gold continued to climb towards its all time high of $1387.1, set on October 14th for rest of the European session and rocketed just before markets in North America opened for their trading day. Gold price went quiet in early U.S session but once again found fresh buying support towards the end of the session and landed in uncharted territory, peaking to its intraday high of $1393.2 an ounce and finished its day just below its session high at $1392.2 an ounce.
Coming Up Today: Change in Non-Farm Payrolls (U.S)
Unemployment Rate (OCT) (U.S)
Other Metals:
Silver futures for December delivery closed up 1.61 cent to $26.04 an ounce on Thursday.
Platinum futures for January delivery rose by $58.70 to $1,755.90 an ounce on NYMEX.
Palladium futures for December delivery rose by $32.05 to $674.75 an ounce.
December N.Y. Copper closed up 13 cent $3.91 a pound on Thursday.
Gold (News and Views):
December Comex gold closed up $45.50 at $1,383.10 an ounce on Thursday. The London P.M. gold fixing was $1,381.00 on Thursday compared to its previous P.M fixing $1,345.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1292.189 tons on November 02 down from 1293.101. The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 0.60 to 75.71 on Thursday. Crude Oil for October delivery rose by $1.80 to settle at $86.49 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.
The gold/silver ratio fell from around 67 in mid-August to 55 at the end of October, meaning silver was outperforming. However, there is potential for this to reverse should risk appetite abate, says BNP Paribas. BNP says the ratio tends to rise in times of higher aversion to risk, given gold’s role as a safe haven, and the ratio declines when risk appetite resumes.
Factors Affecting Gold Price Yesterday:
Gold prices had been on fire Thursday afternoon "on the back of the post-Fed dollar weakness," as FastMarkets research analyst James Moore put it in a daily note.
"Increased risk appetite following the Fed announcement yesterday may prompt pockets of long liquidation in the precious metals as stocks and other commodities gain, however strong physical demand and longer-term inflationary concerns will continue to underpin the metals with a weak dollar set to provide further upside momentum," Moore wrote.
After extreme market volatility following an FOMC statement Thursday, “sensibility” has returned and markets are beginning to understand that the Federal Reserve will do what it can to deal a “death blow” to deflation and that inflation is the better choice, says newsletter writer Dennis Gartman. Some longs were forced out of positions in base and precious metals as the markets fell sharply at times, he says in his daily The Gartman Letter. “With the ‘decks’ having been cleared of late longs, the path is more evidently upward than it was...” Gartman says.
“QE2 was a green light to buy everything commodities and sell [the] dollar,” said Zachary Oxman, managing director for TrendMax Futures.
"The relationship between the dollar and gold remains a very strong one and the recent move post-QE is a dollar-related move more than anything else," said RBS commodities strategist Daniel Major. "It's pretty constructive on a near-term basis, provided the market continues to trade gold very closely to moves in the currency."
Gold Future Outlook:
Ira Epstein, director of the Ira Epstein Division of The Linn Group, says Thursday’s gold rally appears to mark the end of the October correction that he had expected. “I now expect to see gold trade at new all-time highs, maybe up to $1,450 in the very near future,” he says. The Fed has essentially “turned the printing presses on” with Thursday’s announcement of quantitative easing, Epstein says. “In the process, I expect the dollar to fall sharply against most major currencies. As the dollar falls, I expect goods priced in dollars to rise.” The Fed may achieve its goal of avoiding too-low inflation. But in the process of reaching that objective, Fed members also “will most likely overshoot their goal,” Epstein says. Metals, energies, grains, softs and stock indices are all sharply higher. “The Fed message is clear," Epstein says. "Inflation is going to pick up and in the process a number of markets are going to rally.”
SEB Commodity Research anticipates more investment demand for gold after the FOMC announced a second round of quantitative easing (QE2) Thursday. “After the QE2 announcement, the field is open for further dollar weakness and higher gold prices as printing presses warm up. The next big issue for the dollar and in the gold market is the G20 meeting and what direction the devaluation war will take from that point,” SEB says. “If negotiations fail, we can expect further loss of confidence in paper money and additional demand for gold.”
Meanwhile, there is a worrying development in the European debt crisis, as borrowing costs for nations such as Greece, Ireland and Portugal have risen over the last week and Germany suggested a permanent debt crisis mechanism, SEB says. “The fact that both Europe and the U.S. appear to make emergency measures permanent (QE2 and the permanent debt crisis mechanism) and thereby push problems into the future strengthens our bullish strategic view on the gold market, both from an uncertainty and inflation perspective,” SEB says. “Indications of strengthening long term Chinese demand also add to the bullish picture.”
There is definitely going to be some more fallout from what has been announced," said Credit Suisse analyst Tom Kendall. "Clearly this is contributing to the bearishness on the U.S. dollar, and that is bullish for all commodities, not just gold."
Gold, copper and oil have benefited from the movement in the currency market since the Federal Reserve announced its $600 billion quantitative easing program late Thursday, says Janet Mirasola, managing director for metals at R.J. O’Brien & Associates. “The dollar remains weak against a basket of currencies, which in turn is helping to support robust commodity prices as the Shiny One tracks back over $1,350 (per ounce), the Red One climbs towards $8,500 (per metric ton) and the Black One finds new friends over $85 (per barrel),” she says. “After the long wait for the FOMC results, markets now need time to digest and analyze the outcome as it affects individual asset classes. To run everything in one knee-jerk direction may not be the smartest move and investors should look to decide which assets are more deserving of the boost in confidence than others.”
Technical Analysis (by Jim Wyckoff):
Technically, December gold futures bulls have the solid overall near-term and longer-term technical advantage, and gained fresh upside power Thursday. A 13-week-old uptrend on the daily bar chart has been re-established this week.
Bulls' next near-term upside technical objective is to produce a close above solid technical resistance at the all-time record high of $1,388.10.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,340.00. First resistance is seen at the all-time high of $1,388.10 and then at $1,400.00.
Support is seen at $1,366.00 and then at $1,350.00.
Wyckoff's Market Rating: 8.5.
Daily Gold and Silver Expected Range:
Gold: US$1370- $1408
Silver: US$25.60 - $27.00
