Gold Finished Sharply Higher Due to Safe Haven Demand
| 24 Nov 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1387 | 1398 | 1413 |
|
| 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1361 | 1345 | 1334 |
| Today’s pivot point US$ | 1371 |
|
|
The Day’s Story:
Gold finished sharply higher on Tuesday as Military tensions between North and South Korea and ongoing worries over Euro Zone debt crisis forced investors out of riskier assets and found shelter in safety of precious metal. Mixed economic data from U.S also supported gold prices along with some technical buying in a roller coaster trading action. Yesterday's option expiration did little to cap gold's gains and after a rather muted reaction to Korea's news, bullion rocketed in mid-U.S session while stocks plummeted as better than expected 3rd Quarter GDP numbers were failed to ease a sharp selloff in equities. Gold's recent correction seems to be over and we may soon see it landing into $1400 territory once again. Gold has declined for last two weeks but has been up by over 1.5% this week, making its yearly gains to 26% so far.
Main U.S. indexes ended deep in red as investors were in no mood to commit themselves ahead of Thanksgiving holiday on Thursday in a shortened week of trading. Dow finished its day with 1.27% losses, while S&P 500 fell 1.43%. NASDAQ was the biggest loser among all losing 1.46% of its value. Market was surprised with better than expected Q3 GDP numbers for U.S economy as it was revised up 2.5% against an earlier estimate of 2.0%. Those numbers met with a subdued reaction from investors as a separate report revealed existing home sale fell far more than market consensus amid Korean Peninsula military tension and ongoing European debt contagion fears. Further adding to the pressure, the Federal Reserve released the minutes from its November meeting, which showed policymakers disagreement over the fresh round of monetary easing measures, a 600-billion- dollar program to jump start the economic recovery. Adding fuel to the fire, Fed officials also lowered their economic outlook for 2011, while at the same time raised its unemployment estimates for the next two years. European stocks also finished with steep losses led by Banking and Commodities stocks.
U.S dollar index added further to its value as Euro fell to its seven weeks low against the greenback. The euro declined sharply, following comments from German Chancellor Angela Merkel about the European currency’s fragile state ahead of the Irish rescue. Dollar extended its gains as Korean conflict added to its
appeal as a safe haven destination. Earlier during the day, U.S dollar kept a lid on Gold’s advances but yellow metal popped on news that North Korea attacked a South Korean Island killing two marines and injuring four others. Gold and dollar inverse correlation has weakened in recent days as was the case in first half of this year when European debt crisis surfaced. Both normally move in opposite directions but heightened economic and geopolitical uncertainties make them safe haven destinations for investors to park their money in.
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 due to its status as a hedge against crisis. Traders will also look for China’s further measures 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.
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.
Gold price started its day with some losses and remained under pressure for most part of Asian trading hours. Selling pressure was eased during later part of Asian session and as markets in Europe started their trading day. Gold briefly visited positive territory during early hours of European trade but fell back into red as session progressed, hitting its intraday low of $1356 an ounce just before markets in U.S started their trading day. Bullion rocketed as North American markets opened, paring all of its intraday losses and rising to its intraday peak of $1382.2 an ounce by mid U.S session. Gold gave away some of its gains later in the session but finished 0.8% higher for the day at $1376.5 an ounce.
Other Metals:
Silver futures for December delivery closed up 11 cent to $27.57 an ounce on Tuesday.
Platinum futures for January delivery rose by $2.20 to $1,657.70 an ounce on NYMEX.
Palladium futures for December delivery rose by $6.40 to $691.10 an ounce.
N.Y. Copper for January delivery closed down 5 cent to $3.71 a pound on Tuesday.
Gold (News and Views):
December Comex gold closed up $19.80 at $1,377.60 an ounce on Tuesday. The London P.M. gold fixing was $1,377.50 on Tuesday compared to its previous P.M fixing $1,356.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose by 3 tons to 1285.284 tons on November 22 down from 1289.336. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose by 1.06
To 79.67 on Tuesday.
Crude Oil for December delivery fell $0.49 to settle at $81.25 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.
Factors Affecting Gold Price Yesterday:
"We've had these saber rattlings before and nothing came out of it afterwards," says George Gero, senior vice president at RBC Capital Markets. "Gold today is really concerned with ... the euro selling off ... the credit default swaps widening in Europe" and technical trading.
Gold and silver are “profiting from the renewed rise in risk aversion, which has intensified again by an attack on a South Korean island by North Korea overnight,” analysts at Commerzbank said in a note to clients.
“People are shedding risk and going to flight-to-quality assets like gold,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “People are viciously selling off the euro on contagion fears and the Korean conflict.”
“People are putting money back into metals in a reinvestment wave,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.
Traders in London also cited strong buying of gold futures related to the expiry of COMEX December options on Tuesday. "There were some big strikes around $1,370 and that meant that up until 2.30 p.m. there was plenty of selling in the market around those levels, so that was putting a bit of a cap on it," one trader at a European bank said.
"We've now gone through that option expiry, it looks like the selling's disappeared and we could have a chance to move higher this afternoon," the trader added.
"Gold's up on sovereign risk issues, worries over Ireland, and also the Korean incident, which prompted investors to buy gold and the dollar simultaneously, and that's why the U.S. bond yields are falling," said James Steel, chief commodity analyst at HSBC.
Gold Future Outlook:
During a shortened trading week, Gero says traders have to roll over or liquidate 200,000 contracts before December first to avoid having to put full money up on positions.
"I think gold is going to be up," says Gero. "I just don't think it's going to have the strong up move that it might have [had] based on just this news ... I think we're going to look for $1,320 as a support level and we'll probably go up to the $1,400's by the end of the year."
This is the new leg of the bull market. Everybody knew what's going on in Ireland, the next shoe to drop is going to be Portugal and Spain," COMEX gold option floor trader Jonathan Jossen.
“While the yellow metal moved higher today, the long Thanksgiving holiday weekend in the U.S., the proximity of year-end and the fear of Chinese tightening could tempt investors to accelerate their profit-taking process,” says a research note from MKS Finance.
Natixis analyst Nic Brown felt that any boost for gold from events in Korea and even in the European Union were likely to play second fiddle to bigger picture issues like the dollar and global measures against inflation.
"I'm not sure the gold market is being pushed around by European credit concerns in the same way that it was earlier in the year," he said.
"It feels to me at the minute that it is more about events in the U.S. - quantitative easing, the strength of the dollar and also rising inflation in some of the developing countries around the world."
Technical analysis (by Jim Wyckoff):
Technically, December gold futures Tuesday hit a fresh nearly two-week high. The bulls have solid upside near-term technical momentum and gained more Tuesday. A four-month-old uptrend on the daily bar chart has been restarted.
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 $1,340.00.
First resistance is seen at Tuesday's high of $1,382.90 and then at $1,388.10.
Support is seen at $1,370.00 and then at $1,360.00.
Wyckoff's Market Rating: 7.5.
Daily Gold and Silver Expected Range:
Gold: US$1356- $1394
Silver: US$27.18 - $28.25
