Gold Upward Momentum Continues for Fourth Straight Session
Gold Rose Sharply as European Debt Contagion Fears Boosted Safe Haven Appeal
| 01 Dec 2010 | 1st resistance | 2nd resistance | 3rd resistance |
| Today’s resistance US$ | 1396 | 1406 | 1423 |
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| 1st support | 2nd support | 3rd support |
| Today’s support US$ | 1369 | 1352 | 1342 |
| Today’s pivot point US$ | 1379 |
|
|
The Day’s Story:
Gold finished sharply higher on Tuesday as ongoing worries over European debt contagion fears boosted the safe haven demand for both gold and U.S dollar. Both headed in the same direction, breaking away from their inverse correlation relationship as investors dumped riskier assets. News that China approved a new Gold investment fund also boosted bullish sentiments among gold lovers. Gold finally broke above its recent trading range and settled to its highest level since November 11 and finished the month with 2% gains making it 8th out of 11 months in 2010.Expect gold to move higher as long as European debt saga, Korean conflict and concerns over Chinese rate hike to curb inflation continue to make headlines. The current worrisome environment for global economy could lead investors to put more trust in precious metal instead of taking profits close to year end.
U.S indexes finished lower for second straight session as European debt fears continued to plague global markets. Main U.S indexes also finished the month of November in red, a downbeat end to the month which started with a bang. The Dow Jones industrial average lost 46 points or 0.4% to finish at 11006, S&P 500 fell 7 points or 0.6% to close at 1,180.55 and the NASDAQ dropped 27 points or 1.1% to end at 2,498.83. Stocks were also affected by some disappointing data before the market open. The Case-Shiller Home Prices Index reported that house prices fell 2% in 3rd quarter against analysts forecast who were expecting a rise. There were some signs of hope that U.S economy is making progress as Chicago PMI index ticked up to 62.5 in November from 60.6 in October. Economists were expecting a slight drop in those numbers. A separate report revealed that consumer confidence rose more than expected to 54.1 in November against Economists expectations of 52. Positive data did help stocks to come off their earlier lows but markets could not recover fully as European debt crisis kept investors away from any buying. European stocks ended mostly flat. Britain's FTSE 100 and the DAX in Germany were unchanged, but France's CAC 40 closed off by 0.8%.
We expect some sharp movement in gold price as market will have a lot of economic data to digest this week. Some of the major U.S. economic reports on the calendar this week include the ADP private-sector
employment report and Institute for Supply Management’s manufacturing survey today, jobless claims Thursday and the monthly jobs report and ISM service-sector survey Friday The Friday Non-Farm payroll report which is the arguably the most Important economic report for financial markets will give further clues about U.S jobs market which is still hovering near double digit unemployment rate despite official data indicating U.S economy out of the recession. Market is expecting non-farm payroll numbers to rise by 165,000 in November. Better than expected numbers could help stocks to resume their uptrend enabling bullion to tag along as well. A disappointing jobs figure could trigger safe haven buying interest in gold so gold may remain supported regardless of the outcome on Friday.
U.S. dollar index enjoyed another day of decent gains on Tuesday rising to two and half months high against European common currency. Technical analysts suggest the dollar index has put in a near term market low due to a boost in its safe haven demand at the back of crisis in Europe. Stronger greenback which halted gold’s advances for past two session’s tagged bullion along breaking away from their negative correlation relationship which has been erratic during recent weeks due to current financial and geopolitical crisis.
Gold and Dollar move in opposite directions to each other due to their inverse correlation as dollar weakness enhances demand for dollar denominated assets for holders of other currencies. Both however, can travel in the same direction at time of heightened economic uncertainty as was the case in first half of this year during Greece’s debt crisis. Similar trend has been followed since problems in Ireland emerged few weeks ago.
Ireland has agreed on a bailout package from EU and IMF to help its economy out of the woods, a move that cheered investors up initially. The focus was quickly shifted from Ireland to Portugal and much bigger player Spain as they could be next in line to ask for help. In latest developments, Italy and Belgium have been added to that list of countries. Questions that raise in minds are how badly affected these countries are and what other countries are going to be added to that growing list as most countries do have debt issues to some extent. It will be impossible to bailout all those countries if situation gets worse so steps must be taken to contain and address the issue in a manner that these kinds of disasters could be minimized in severity or stopped altogether in future. Until market is satisfied with such a solution, gold price will remain well supported.
No further development were reported from Korean Peninsula yesterday but issue remains at the backdrop and will continue to support gold prices as long as there is an agreeable solution to the matter which will reduce tensions between the two neighbors. Gold prices could be more volatile towards the end of the year as profit-takers contend with "bargain-hunters" and those wanting to add gold to their portfolio before the New Year. During December, those traders selling gold future contracts must also deliver physical gold and the longs must pony up the cash which increases liquidity and volatility in the market.
Gold price started its Tuesday session with some losses and traded in a narrow range during early Asian session. Gold fell to its intraday low of $1362.6 an ounce by mid Asian session. Some mild buying got the price out of red just before markets in Europe started their trading session. Gold price sky rocketed as European session progressed and rose sharply throughout European trade. U.S market open saw further
buying pressure pushing price to its intraday high of $1389.7 an ounce. Gold price managed to finish its day just below its session high at $1386 an ounce, with gains of 1.5%.
Other Metals:
Silver futures for March delivery closed up 102 cent to $28.21 an ounce on Tuesday.
Platinum futures for January delivery rose by $21.80 to $1,666.40 an ounce on NYMEX.
Palladium futures for March delivery rose by $8.15 to $703.00 an ounce.
N.Y. Copper for March delivery closed up 6 cents to $3.83 a pound on Tuesday.
Gold (News and Views):
February Comex gold closed up $18.60 at $1,386.10 an ounce on Tuesday. The London P.M. gold fixing was $1,383.50 on Tuesday compared to its previous P.M fixing $1,357.00. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1286.603 tons on November 29 up from 1285.084. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose by 0.50 To 81.31 on Tuesday. Crude Oil for January delivery fell $1.62 to $84.11 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. China and India are both credited with supporting physical global gold demand and being instrumental in higher prices. In the third quarter, jewelry demand in India grew 36% and 8% in China totaling 285.8 tons, about a third of total identifiable gold demand, according to the World Gold Council. Speculative trading activity in some Commodity Futures Trading Commission reports shows these participants increased net-long positions in gold and silver, halting a slide seen in the past several weeks. In the disaggregated report, managed-money accounts in gold are now net-long 177,269 contracts, having increased their gross longs by 3,407 contracts and cut gross shorts by 795 contracts. Participants in the swap dealers and producer/merchant category remain net short, but both cut trimmed their gross shorts. Producers also cut gross longs, while swap dealers increased longs.
Factors Affecting Gold Price Yesterday:
The current worrisome climate surround European debt, coupled with physical buying, could help gold overcome the “usual” year-end profit-taking, says a research note from MKS Finance. The European worries helped the metal break up out of its trading range Tuesday, MKS says. “Should the situation in Europe and in the Korean peninsula deteriorate, the yellow metal might benefit from safe-haven buying,” MKS says. Speculation that Spain and Portugal could be the next in line to ask for help financial help prompted safe-haven flows into gold. Nevertheless, there is potential for a stronger dollar to put some pressure on gold, MKS says, although noting that gold currently is rising despite the stronger dollar.
"Even the strong U.S. dollar could not push gold in dollar terms lower," said Eugen Weinberg, an analyst at
Commerzbank. "This suggests that the U.S. dollar is not perceived as theprimary safe haven right now, but rather gold."
Gold has shown an ability to hold up as a hedge during European debt issues this year, says Standard Bank. Parallels have been drawn between current European debt problems and those seen with Greece in the April-July period. Standard studied the reaction of commodities to euro weakness in April-July. “On average, commodity prices have fallen much more on euro weakness than they have rallied higher on euro strength between April and July this year,” Standard says. The exception was gold, which increased on euro weakness, confirming its status as a hedge against credit risk, Standard says. “We believe gold is set to do so again.”
The gold rally is being fostered by “nervous and anxious holders of euro currencies and Far East buyers nervous about Korean problems,” wrote George Gero, a precious metals strategist for RBC Capital Markets.
"When the euro slipped under $1.30 range, it triggered a new wave of safe-haven buying," said Frank McGhee, head precious metals trader of Integrated Brokerage Services. "If you are holding your assets in euro, you are very afraid."
IBS' McGhee said that technical buying boosted gold as the metal was on the verge of breaking out of a bearish potential head-and-shoulder chart pattern.
Gold Future Outlook:
Spot gold is near the upper end of a trading range that technical-chart analysts with Barclays Capital put between $1,329 and $1,382. They describe a picture where an underlying bid in gold is balanced by a rally in the dollar index. Referring to gold in dollar terms, they write: “A break above 1382 would allow a re-test of the 1425 high and extension to our target at 1440. On the downside, trendline support and the November low at 1338 and 1330, respectively are important support. Below here would open up talk of a large head-and-shoulders top in October and November and strong downside potential (not our bias at this point).”
"If we can close above $1,380 that would change us from sideways to down to sideways to up," said Jeff Friedman, senior market strategist at Lind-Waldock earlier in the day. "If we have a pullback I am definitely a buyer ... I am looking at $1,351 and $1,340 and definitely $1,325. I do not believe we are going to break $1,300 ... I think the low is in for the month of November and December."
George Gero, vice president at RBC Capital Markets, says prices "may hit temporary resistance here and a correction may ensue, but the trend is your friend according to floor traders."
“As the euro is melting down, gold is higher,” said Brian Dolan, chief currency strategist with FOREX.com, who also tracks gold.
Technically, Dolan said, the $1,385 area is a key chart resistance level for spot gold.
“On one of the chart patterns we’re looking at, there is potential for developing a head-and-shoulders top,” he
said. “If it (moves) above $1,385, it violates that pattern and suggests that new highs are going to be made.”
Technical Analysis (By Jim Wyckoff):
Technically, February gold futures closed nearer the session high Tuesday. The gold market bulls have the solid near-term technical advantage and gained fresh upside momentum Tuesday. A four-month-old uptrend is in place on the daily bar chart.
Bulls' next near-term upside technical objective is to produce a close above psychological resistance at $1,400.00.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,352.00. First resistance is seen at Tuesday's high of $1,391.10 and then at $1,400.00.
Support is seen at $1,375.00 and then at Tuesday's low of $1,364.00.
Wyckoff's Market Rating: 8.0.
Daily Gold and Silver Expected Range:
Gold: US$1370- $1405
Silver: US$27.69 - $29.35
