| Gold Held on to Its Gains in a Volatile Trading Session |
| 11 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1414 | 1425 | 1441 |
| | 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1388 | 1373 | 1362 |
| Today’s pivot point US$ | 1399 | | |
The Day’s Story:
Gold price advanced after a day of steep losses on Wednesday in a volatile trade. Gold December futures were dragged sharply down as technical selling and resurging U.S dollar pressured the prices. Spot gold which also faced selling pressure during the day fluctuated above and below $1400 level throughout the day found some support from bargain hunters due to latest dip in price which has been the case during every price correction in precious metal for last many months. Silver fell sharply in reaction to the news that Chicago Mercantile Exchange had increased Silver Futures margin by 30%. Although such a move will not be able to reverse the market but will have a negative short term impact on price as many participants will be forced to pull out of their long positions or face margin calls. Gold will not be affected with CME move but due to tight correlation between both metals, bullion sold off in sympathy. Concerns over Irish debt situation have eased after Irish Central Bank governor said that Ireland will return to bond market next years supporting stocks and gold as a result.
U.S stocks advanced after recovering from earlier intraday losses, ending two days of declines. DOW ended its day up by 0.1% while S&P500 finished up by 0.44% and NASDAQ recorded gains of 0.62% to finish the day. Stocks initial reaction to some positive data was muted as jobless numbers fell more than market expectations. U.S stocks managed to erase their earlier losses as energy companies led the gains at the back of buoyant oil prices due to department of Energy’s bullish inventory numbers. Stocks also found some support as dollar gave away its intraday gains as fears over Eurozone debt situation were abated after comments from Irish Central Bank Governor. European stocks could not benefit from late news that lifted U.S stocks out of red zone and ended sharply lower.
G20 meeting in South Korea later this week will be the main point of interest for investors going into the weekend to take further clues. Market is hoping for a decisive action regarding currency exchange rules 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 and despite some improvement on charts, its overall outlook remains bearish which is an underlying bullish factor for gold prices.
U.S dollar ended marginally lower after earlier rising by 0.9% as Irish Bond situation pressured European common currency until the Governor of Ireland Central Bank had something positive to say to calm investors’ fears. Dollar declines late in the session helped gold to finish in green zone along with stocks as currency traders reversed their bets on European Sovereign debt fears. Also a background factor in favor of gold was confirmation from China that the country raised the amount of money banks must hold in their reserves by 50 basis points. The move by China will limit the money in circulation in order to curb inflation. Dollar which has rebounded from steep losses in last few sessions is largely depending on G20 meeting outcome later this week for its next move which as a result will impact gold prices due to their negative correlation. If leaders of 20 biggest nations in the world are failed to deliver concrete measures for paper currencies valuation, expect further declines in greenback and that may lead gold into uncharted territories once again. In other outside markets Crude Oil rose sharply lending some support to gold prices.
Gold price started its Wednesday session with minor gains but remained in a narrow trading range throughout Asian trading hours. Gold price made a sharp move upwards during early hours of European trade but was unable to hold on to those gains and fell into negative territory just when U.S markets started their trading day. Gold fell to its intraday low of $1383.8 an ounce in early U.S trade but recovered its losses as dollar ran out of steam. Gold managed to finish its day with 0.8% gains, above critical $1400 level at $1403.3 an ounce.
Other Metals:
Silver futures for December delivery closed down 204.0 cent to $26.86 an ounce on Wednesday.
Platinum futures for January delivery fell $71.70 to $1,737.80 an ounce on NYMEX.
Palladium futures for December delivery fell $45.90 to $696.75 an ounce.
December N.Y. Copper closed down 7 cents to $3.97 a pound on Wednesday.
Gold (News and Views):
December Comex gold closed down $10.80 at $1,399.30 an ounce on Wednesday. The London P.M. gold fixing was $1,390.50 on Wednesday compared to its previous P.M fixing $1,421.00. 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, fell 0.07 to 77.68 on Wednesday. Crude Oil for October delivery rose $1.09 to settle at $87.81 on Wednesday 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. Yesterday, open interest in gold futures reached a record 666,489 contracts, and volume in silver futures rose to an all-time high of 201,126 contracts. Factors Affecting Gold Price Yesterday:
George Gero, vice president at RBC Capital Markets, said that "yesterday's volatility continues as the higher the price, the higher the volatility in futures." Technical selling combined with stop-loss orders, where traders are forced to sell after gold breaks through a certain level, are "finding few buyers for now."
Traders are in the process of deciding if they want to let their gold December option contracts expire on the first of the month or else put up new capital to roll them over to February 2011. Gero expects the massive selling to be done by tomorrow.
“Gold was not cheap, so it’s not surprising that it would go down with the dollar rallying hard,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
“The volatility is jacked up, and the question now is if the commodity trade is over,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.
"I don't think anyone is going to wholesale sell gold because of the dollar's strength," said Adam Klopfenstein, senior market strategist with Lind-Waldock. "It's a question of which currency is the worst of a bad basket; it's not that anyone feels safe in one currency now.”
"In general the market is following through with the hike in margins by the CME yesterday afternoon," which contributed to a fall of silver and gold prices, said Tom Pawlicki, precious metals and energy analyst with MF Global in Chicago.
Gold Future Outlook:
"No market goes straight up or straight down" said Greg Marshall, CEO of Global Asset Management. "[Gold will] correct ... but the corrections we've seen of late always bring more buyers into the market."
"I don't believe there is such a thing as [a gold bubble] at least not yet," said Marshall, who sees $1,500 gold by the end of the year. "In order for there to be a gold bubble the general public would be buying it and that is still not the case ... [gold will be] two to three times higher in price when the general public is finally in this market."
"[Gold] will remain vulnerable to [corrections] shot-term on dollar bounces," said James Moore, analyst at thebulliondesk.com. "[But] given the negative dollar fundamentals the longer-term outlook for the complex remains positive."
The uptrend remains for gold, although a “pause” may be in order, say technicians with Barclays Capital. “In the absence of clear evidence for a top, we retain a bullish long-term buy dips view,” they say in a research note. “With the DSI reading 95% bullish, sentiment is once again becoming extremely stretched and a pause would not be unwelcome. Range trading above $1,325 is bullish, more aggressively so if support at $1,375 limits the downside. Sentiment for silver is also 95% bullish, so as price approaches the psychologically important $30 level, we are nervously watching out for signs of profit-taking.” The late-Tuesday pullback may have been a start. “However, while supported above $26.50, we continue to respect the uptrend. Targeting $31 and higher next year,” Barclays concludes.
Technical Analysis (by Jim Wyckoff):
Technically, December Comex gold futures' high-range close Wednesday did avoid any significant chart damage being inflicted, following Wednesday afternoon's very volatile trading action. Gold bulls still have the overall near-term and longer-term technical advantage. A 3.5-month-old uptrend on the daily bar chart is still in place.
Bulls' next near-term upside technical objective is to produce a close above technical resistance at Wednesday's all-time high of $1,424.30.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,366.00. First resistance is seen at Wednesday's high of $1,410.00 and then at $1,420.00.
Support is seen at $1,390.00 and then at this week's low of $1,382.20.
Wyckoff's Market Rating: 7.5.
Daily Gold and Silver Expected Range:
Gold: US$1382- $1425
Silver: US$26.65 - $28.20
