Gold Fell Sharply In Final Hours As Dollar Rebounded
| 10 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1417 | 1442 | 1459 |
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| 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1375 | 1358 | 1333 |
| Today’s pivot point US$ | 1400 |
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The Day’s Story:
Gold price made another record in yesterday's trading reaching fresh all time high for fourth consecutive session. Gold however, was hit with profit taking late in the session as U.S dollar rebounded strongly. Spot gold finished below critical 1400 level at 1392.5 after falling down to 1382 before the close. Gold was earlier boosted by weakening dollar and renewed fears in Eurozone which helped prices to reach new all time high. Gold had posted gains of over 5% as it hit its peak yesterday but trimmed those gains due to a late sell off as investors decided to lock some of those profits.
U.S stocks ended lower for second day straight after reaching to their two and half year high late last week at the back of fresh stimulus by FED. Latest losses came as investors questioned the potential effects of FED’s plan to boost the economic recovery. DOW finished 0.53% lower whereas S&P500 slid 0.81% making it the biggest daily decline in 3 weeks and NASDAQ finished down by 0.66%. Stocks did react positive to the news that U.S wholesalers inventories rose twice as much as forecast in the month of September but those gains were short lived and traders were surely in a mood to take a pause from recent rally not only in stocks but treasuries and commodities as well where latter gave away their intraday gains in final hours of the session. European stocks however, managed to close higher lead by financials and commodities.
U.S dollar continued to rise for 3rd session in a row after spending most of the earlier part of the session in red zone. Greenback was benefited from renewed fears over Eurozone debt situation as Irish and Portuguese bond yields rose to record levels to entice investors because they were more cautious to lend money to these countries. U.S dollar rebound has also been helped by a short covering rally after its recent losses and massively over sold technical status. Gold and dollar’s inverse correlation which took a hit in previous two session became positive again as dollar’s gains triggered a massive sell off in precious metal late in U.S session.
Investors are also waiting for G20 meeting in South Korea later this week where they are hoping for a decisive
action regarding currency debasement as Germany, Brazil and China are heavily criticizing U.S for its recent
stimulus what they regard as a currency manipulation to encourage exports as cheaper U.S dollar will make it harder for those countries to sell their products abroad. The volatility of paper currencies has aired the debate of having a reserve currency other than U.S dollar and some officials are calling Gold for its replacement. We may see further short-term gains in U.S dollar but its overall outlook remains bearish which is an underlying bullish factor for gold prices. Keep an eye on dollar movement as well as emerging debt situation in Europe to take further clues for Gold prices in the absence any significant economic data for rest of the week.
Many of us never thought of seeing gold to its recent levels but as long as uncertainty looms over global economic outlook and unless Governments and Central Banks get their acts together, expect more surprises from precious metal. I would also like to point out Silver’s run to record 30 year high as it has attracted a lot of attention in recent months. Silver which is considered poor man’s gold has outperformed gold due to its increased investment as well as industrial demand. In other outside markets Crude Oil gave away some of its recent gains for second day.
Gold price started its Tuesday session with extending its gains from previous sessions and continued to climb in uncharted territory throughout Asian session. Gold’s gains were accelerated during early European session as higher stocks aided gold prices to move further up. Gold seesawed for later part of European trade and remained in a narrow trading range as markets in U.S started their trading day. Gold peaked to its all time intraday high of $1424.3 by mid U.S session but couldn’t hold on to those gains. A massive round of profit taking erased gold’s intraday gains as dollar surged in final hours of U.S session sending prices down by 2.5% to its intraday low level of $1382.4 an ounce. Gold managed to pare some of its late losses and finished at $1392.5 an ounce.
Other Metals:
Silver futures for December delivery closed up 147.0 cent to $28.91 an ounce on Tuesday.
Platinum futures for January delivery rose by $38.50 to $1,809.50 an ounce on NYMEX.
Palladium futures for December delivery rose by $31.75 to $742.65 an ounce.
December N.Y. Copper closed up 8 cents to $4.04 a pound on Tuesday.
Gold (News and Views):
December Comex gold closed up $5.50 at $1,410.10 an ounce on Tuesday. The London P.M. gold fixing was $1,421.00 on Tuesday compared to its previous P.M fixing $1,388.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1294.2 tons on November 09 up from 1292.189. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.70 to 77.75 on Tuesday. Crude Oil for October delivery fell $0.34 to settle at $86.72 on Tuesday 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.
Demand for gold during the Diwali festival, which started last week in India, increased 25% to 20 metric tons in the week to Monday, GoldCore says. Meanwhile, gold prices there rose to an all-time high of 20,525 rupees. Gold set nominal price records Monday in sterling, at GBP877.30 and is targeting record nominal highs in euros. Gold traded in Canadian dollars rose as much as 0.5% to C$1,422.169 an ounce, the highest price since 1971, the firm says.
Factors Affecting Gold Price Yesterday:
"Anxious fund managers worried about missing asset allocations into metals were buyers and some previously sold hedges were removed," says George Gero, vice president at RBC Capital Markets. But "profit taking [resulted] in extremely heavy volume."
Gero is anticipating more volatility as traders decide whether to roll over their December gold future contracts or whether to sell. "If open interest is down tomorrow, we had liquidation after a new high."
Gold denominated in euros had traded at its best since the end of June and 3% shy of its record high, analysts at Commerzbank noted Tuesday.
“Concerns about the risk of insolvency of euro-peripheral countries are back in the focus of market players,” they wrote in a note
“Whether the dollar is up or down 10 cents, it’s inconsequential,” said Richard Ross, a technical analyst at Auerbach Grayson in New York. “We still have a weaker dollar from a broader standpoint,” which has been stoking growing interest in hard assets, he added. The metal is benefiting from safe-haven appeal as worries about European debt, particularly Irish bonds, have resurfaced, according to Ross.
Some traders said a rise in margins to $6,500 a contract from $5,000 had aided the sell-off in a market that was due for a correction after outperformed gold in the past few months.
"The sell-off started because the market had gone too far too fast," said Frank McGhee, head precious metals trader with Integrated Brokerage Services LLC in Chicago. "The margin change added insult to injury," he added, but said it was not the primary factor driving the after-hours sell-off.
Gold Future Outlook:
As gold demand keeps rising, John Carter, analyst for TheStreet's Options Profits, sees "a strong upward bias on this metal even after the $1,400 level ... I suspect we could find support around $1,387 should it be needed" but Carter's price estimate is $1,432.90 for gold. Carter is using any minor pullbacks in gold to add to his position.
Gold prices have risen 27% year to date and corrections can come fast and furious as traders take profits after record runs. Phil Streible, senior market strategist at Lind-Waldock, doesn't think the gold bull market is over
but that the metal is susceptible to a little bit of a selloff. Streible recommends using the $1,378 and $1,355 level to add some long positions.
Some gold bugs think Zoellick's suggestion that gold should be used as an international reference point doesn't go far enough. Peter Schiff, president of Euro Pacific Capital, said Zoellick is "dancing around the edges" of calling for a gold standard.
"The world desperately needs to go back to a real monetary system that's based on real money which is gold ... If we are going to go back to a gold standard, it's not at $1,400 gold," says Schiff. "If we want to maintain our current wages and prices in this country then gold has to go ... to $5,000 - $10,000 at a minimum."
“The golden surge is rolling right along as investors flock to hard assets at a dizzying pace,” said Kevin Kerr, editor of Kerr Commodities Watch. “Gold [at] $1,500 and beyond is not only likely, it is almost certain.”
But Kerr expects prices to experience a correction before they reach $1,500, so he also suggests “caution and agility” for traders. “We see even more potential in silver and the rare earths, as they are precious but also industrial metals,” he said.
Gold’s rally over $1,400 has attracted momentum traders and new market participants, says George Gero, vice president, Global Futures, RBC Capital Markets, precious metals strategist. There’s a “rush to be hedged against inflation as many key commodities also were making highs,” he says. Gero also said Comex open interest is over 638,000 contracts, which is a record for gold and silver open interest is also up. Gero is looking ahead to when traders must start to move positions out of December gold ahead of delivery. “The rollover in gold could be the largest in many years and those who wish to maintain long positions will be buyers of February or other out months and sell December,” he says.
Technical Analysis (by Jim Wyckoff):
Technically, December Comex gold futures closed the day session near mid-range Tuesday. Gold bulls still have the solid overall near-term and longer-term technical advantage. A 3.5-month-old uptrend on the daily bar chart is in place.
Bulls' next near-term upside technical objective is to produce a close above technical resistance at $1,450.00. Bears' next near-term downside price objective is closing prices below solid technical support at the October high of $1,388.10.
First resistance is seen at Tuesday's all-time high of $1,424.30 and then at $1,430.00.
Support is seen at $1,400.00 and then at $1,390.00.
Wyckoff's Market Rating: 8.5.
Daily Gold and Silver Expected Range:
Gold: US$1382- $1425
Silver: US$26.54 - $28.25
