Gold Upward Momentum Continues for Fourth Straight Session
Gold Finished Stronger as Safe Haven Buying Support Came to Rescue
| 23 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1373 | 1380 | 1393 |
|
| 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1354 | 1341 | 1335 |
| Today’s pivot point US$ | 1361 |
|
|
The Day’s Story:
Gold finished stronger on Monday after visiting both sides of zero line as fresh worries over European sovereign debt issues paved way for safe haven buying interest in precious metal. Ireland agreed to a bailout package from European Union and IMF on Sunday, the amount of which is still to be announced although market expects it anywhere between €80 to €100 Billion. Irish news initially boosted stock markets in Asia and Europe along with Euro but gains were short lived as traders wonder “who is next?” in European debt saga. Gold’s negative correlation with dollar took a hit as both recorded gains due to safe haven buying as was the case in first half of this year when both of them acted as safe destinations for investors to park their money in. Gold is still down by 4.5% from its all time high after entering a short term corrective pullback in last couple of weeks. If concerns about European debt crisis deepen, we may see it landing in uncharted territory once again. Gold is up by 24% this year and looks well set to post its 10th annual gain.
Main U.S. indexes were mixed at their close with DOW and S&P finishing in red while NASDAQ bucked the trend. The Dow Jones Industrial Average closed down 24.97 points, or 0.22%, at 11178.58, Standard & Poor's 500 index shed 1.89, or 0.16% to 1197.84 while Nasdaq Composite rose 13.90, or 0.55% to 2532.02. Stock markets in Asia and Europe were boosted by Irish bailout news but gains did not last long as investors worry over the spillover factor to other debt-ridden smaller European nations. Financial sector led the DOW declines as FBI raided the offices of three hedge funds, Diamondback Capital Management LLC, Level Global Investors LP and Loch Capital Management LLC in an insider-trading probe. Market main focus was development in Europe in the absence of any economic data in a shortened trading week due to Thanksgiving holiday on Thursday. Stocks in Europe erased their earlier gains as the session progressed and ended in negative territory due to debt contagion factor.
U.S dollar index made steady gains throughout Monday session and ended in green. Dollar came under pressure at the start of the session after Ireland, once a Celtic tiger agreed to seek help for its failing banking
system. Euro rose sharply in a knee jerk reaction but gains were short lived and ended sharply lower against
greenback. Gold and dollar which usually move in opposite directions broke their inverse correlation and headed in the same direction. Investors remain wary over European zone’s debt situation despite an apparent solution to Ireland debt crisis and that will keep the common currency under pressure for days to come. Gold loves economic turmoil and prosperous the most in such a scenario. If another European nation makes headlines in coming days, expect gold to rise further regardless of dollar’s movement although both pick the same direction at times of heightened economic uncertainty as was the case during Greece’s bailout in first half of this year.
Markets in U.S will be closed due to Thanksgiving holiday on Thursday and Nymex Metals contracts will have shortened trading hours on Friday. Many traders extend their holiday by taking off Friday as well so this week may be quiet but heightened volatility can still be expected. In the short term we may see prices to fall further as we are approaching towards end of month option expiration on Tuesday which is usually negative for prices. Investors will decide whether to roll over their existing positions from December Futures contracts to February or let them expire that could trigger extra volatility in prices. Traders will also look for China’s further steps to control inflation after last week’s rise in Reserve requirement for its banks. Some analysts had been expecting a hike in interest rates, which would have been more severe, and could still happen in the future. Any steps to fight inflation would weigh on gold prices as the metal is seen as protection against future inflation.
Gold price started its first session of the week with strong gains and continued to rise during most of Asian trading hours. Bullion came under selling pressure as the markets in Europe started their trading day and erased all of its intraday gains as the session progressed. Gold continued its journey towards south with U.S market open and fell to its intraday low of $1348.4 an ounce in early U.S trading hours. Latest dip in prices and safe haven buying interest at the back European debt contagion concerns were enough to lure investors which as a result drove prices back up in positive zone. Gold rose sharply in final hours of U.S session and during afterhours trading finishing just below its intraday high of $1367.7 at $1366.8 an ounce.
Other Metals:
Silver futures for December delivery closed up 28.2 cent to $27.46 an ounce on Monday.
Platinum futures for January delivery fell $15.60 to $1,655.50 an ounce on NYMEX.
Palladium futures for December delivery fell $19 to $684.70 an ounce.
N.Y. Copper for January delivery closed down 8 cent to $3.75 a pound on Monday.
Gold (News and Views):
December Comex gold closed up $5.50 at $1,357.80 an ounce on Monday. The London P.M. gold fixing was $1,356.50 on Monday compared to its previous P.M fixing $1,342.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose by 3 tons to 1289.33 tons on November 19 up from 1286.29. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose by 0.14
to 78.61 on Monday.
Crude Oil for December delivery rose $0.13to settle at $81.74 on Monday 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.
Speculative long positions, or bets prices will rise, outnumbered short positions by 218,479 contracts on the Comex, the U.S. Commodity Futures Trading said on Nov. 19. Net-long positions fell 27,700 contracts, or 11 percent, from a week earlier, the biggest drop since mid-July.
Factors Affecting Gold Price Yesterday:
You are seeing the return of some euro risk back into the market. You can see some investors put back on safe-haven trade looking past Ireland and back towards Spain, Portugal and other European states that may end up with problems," said Frank McGhee, head precious metals trader of Integrated Brokerage Services.
"We're not in crisis mode," says Jon Nadler, senior analyst Kitco.com. Although gold prices might trade higher on technical buying, without a big crisis, levels like $1,400 gold will be hard to sustain
"It looks like the $1,400 level might be a ceiling for gold for a while," says David Morgan, founder of Silver-Investor.com. "We have options expiration coming up Tuesday ... the last couple of months [the metals] have actually performed very strongly [during expiration] which is abnormal, normally [prices] fall off or back off so I'm waiting for that to get further direction."
U.S. Treasuries pared price gains on Monday, as the 30-year bond had gained more than a full point in price as worries about the European sovereign debt crisis drove investors into safe-haven Treasuries.
U.S. yields have risen recently amid a broad unwinding of long positions that were taken ahead of the Fed's bond-buyback announcement on Nov. 3. Rising yields, a proxy of U.S. interest rates, usually weigh on gold.
“A lot of big players are liquidating to book profit for the year,” said Frank Lesh, a trader at FuturePath Trading in Chicago. “There’s not a lot of incentive here to be an aggressive trader.”
Gold Future Outlook:
Credit Agricole CIB has upped its price targets for gold. The bank lists a one-month target of $1,400 (up from its previous target of $1,300) and has a new three-month target of $1,450 (up from $1,350). The bank then looks for a pullback to six- and 12-month targets of $1,375 and $1,275, although these are up from its previous targets. Gold is still being sought as a safe haven, and low interest rates have slashed the “opportunity cost” of owning gold, Credit Agricole says. There are concerns about rising government debt and inflation. Investment demand continues. The metal is also underpinned by declining mining output, weaker recycling, net purchases by central banks, producer de-hedging and geopolitical tensions, Credit Agricole says. The bank also raised its silver targets and now sees $26 in one month, $27 in three months, $23.50 in six months and $22.50 in a year.
“It’s going to be a pretty quiet week, so we’re going to see choppy, sideways market action,” said Matt Zeman, trader at LaSalle Futures Group in Chicago.
“Even with Ireland out of the way, people are going to start to look at Spain and Portugal,” LaSalle’s Zeman said.
“Gold prices should remain sensitive to sovereign-risk developments,” said James Steel, analyst at HSBC in New York.
“Bullion prices are likely to be influenced in the coming week by the Irish elections and the release of (Federal Open Market Committee) minutes,” he wrote in a note to clients. Minutes from the meeting of Federal Reserve policy makers earlier this month are due out Tuesday.
Much of the short-term froth is now dissolved - particularly from the gold market - but that doesn't mean the stage is set for a re-run of fresh highs," said UBS precious metals strategist Edel Tully.
"Option expiration can be pressure on futures as they add longs or shorts to accounts," says George Gero, senior vice president at RBC Wealth Management. Many traders are looking to December to find direction for gold prices and discounting any current price volatility due to the shortened trading week.
A short U.S. trading week ahead of Thanksgiving is likely to mean light trade with potential for increased volatility, says Janet Mirasola, managing director of metals with R.J. O’Brien & Associates. “This market short week will likely bring some higher levels of volatility as book squaring and risk aversion may be in vogue,” she says. “Continue to look for value in any assets that get caught up in a short-term liquidation related to outside forces rather than true fundamentals.” Meanwhile, she says, gold, crude oil and copper drew at least some support overnight after gains in the euro against the dollar as financial ministers work on details of a bailout plan for the Irish banking system. “They will continue to follow the momentum of the general wave of relief that yet another euro disaster has been averted,” she says.
Technical analysis (by Jim Wyckoff):
Technically, December Comex gold futures prices closed near mid-range Monday. The bulls have regained some fresh upside near-term technical momentum to suggest the uptrend on the daily bar chart can be extended in the coming weeks.
Bulls' next near-term upside technical objective is to produce a close above technical resistance at the October high of $1,388.10.
Bears' next near-term downside price objective is closing prices below solid technical support at last week's low of $1,329.00.
First resistance is seen at Monday's high of $1,364.80 and then at $1,372.00.
Support is seen at $1,350.00 and then at $1,340.00.
Wyckoff's Market Rating: 7.0.
Daily Gold and Silver Expected Range:
Gold: US$1342- $1382
Silver: US$27.20 - $28.25
