News

Gold Ended Sharply Lower in a Late Sell Off

14 Jan 2011	1st resistance	2nd resistance	3rd resistance
Today’s resistance US$	1388	1402	1411
	1st support	2nd support	3rd support
Today’s support US$	1364	1355	1340
Today’s pivot point US$	1378

The Day’s Story:

Gold suffered huge losses in a choppy trading session Thursday as investors risk appetite improved. Gold earlier rose to $1393 level but a successful auction of Spanish and Italian bonds a day after Portuguese bond auction meeting expectations, diminished gold’s appeal for safe haven purposes as European debt crisis eased - at least for now. Earlier, disappointing initial jobless claim numbers, which rose to their two month high, boosted demand for yellow metal but those gains were lost as day progressed. Weaker dollar couldn't even lure investors to show some faith in precious metal. Gold losses were accelerated in after hours trading following remarks made by Ben Bernanke's about brighter economic outlook for 2011. Some important economic data from U.S is on the cards today. Advance Retail Sales figures, CPI and U. of Michigan Confidence numbers are to watch for. Disappointing figures will trigger an upward pressure in bullion prices. Gold advanced 29.5% in 2010 but despite those decent gains, in commodity world it didn’t even place in the top half and came 8th in terms of annual gains.

Stocks in U.S ended marginally down as investors took a break a day after stocks rose to multi year high. Disappointing initial jobless numbers dampened investors mood before starting bell but couldn’t do much damage as investors shifted their focus to earning season and geared up for Friday’s earning report for Wall Street giant JP Morgan Chase. The Dow Jones closed down 23 points at 11731.90; S&P 500 finished 2 points lower at 1283.76 while NASDAQ fell 2 points to finish its day at 2735.29. All three main U.S indexes recorded double-digit gains in 2010 with DOW finishing 2010 up 11%, S&P 500 13% and NASDAQ 1%. U.S stocks faced earlier pressure as Labor department reported initial jobless claims rose to 445,000 against market consensus of 415,000. In other economic news, Producer Price Index, a measure of wholesale inflation rose to 1.1% against expected 0.8%. In a separate report, Commerce department revealed trade balance was unchanged at $38.3 Billion, a better than expected outcome. Stocks in Europe ended mixed with Britain’s FTSE 100 closing down 0.44% while DAX in Germany ticked up 0.09% and France's CAC 40 rose by 075%. Asian markets however, finished stronger as Shanghai Composite closed up 0.2% and the Hang Seng in Hong Kong gained 0.5% while Japan’s Nikkei finished its day with 0.7% gains.

U.S. dollar index, which measures the dollar against six major currencies ended sharply lower for another day as debt crisis in Europe appear to have eased damaging greenback’s appeal as a safe haven. Euro rose sharply against its US counterpart as it found much needed support from successful bond auctions in last couple of days. Recent gains in dollar were mainly at the back of Euro weakness due to ongoing debt crisis in Europe but now that worries of default and another bailout have calmed, dollar ran out of favor. Gold price gained some strength due to dollar’s weakness earlier during the session but any upside in precious metal was limited as developments in Europe dampened investors’ sentiments to buy yellow metal for safe haven purposes. Further blow to bullion prices came in dying hours of yesterday’s trading when Fed Chairman Ben Bernanke said that he expected U.S economy to grow 3-4% this year and he was optimistic about the job situation this year. Gold shines the most at times of economic turmoil and loss its luster with improved economic outlook. Dollar and gold’s inverse correlation took a hit for the first time this year yesterday as both ended their day in red. Dollar denominated assets tend to move higher at dollar weakness as it makes them cheaper for holders of other currencies. But gold and dollar can break away from that norm at times of heightened economic uncertainty, which had been the case for most part of last year. The dollar dropped 3.4 percent last year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. Euro however, was the biggest loser among major currencies losing 6.5% of its value in 2010.

Euro bounced back from its three months low against greenback earlier this week ahead of Italian, Portuguese and Spanish bond auctions. Concerns about Europe eased somewhat as Portugal sold 1.25 billion euros of government bonds Wednesday, proving it can still access the markets, at least for now. Investors also cheered the outcome of Spanish bond auctions Thursday which went according to expectations. The euro got an additional boost via a buy recommendation from Goldman Sachs, who suggested going tactically long EUR-USD on declining peripheral tensions and the broad US dollar trend. That broad dollar trend they refer to is a negative one that was further reinforced when both S&P and Moody's warned again today that the United States' AAA sovereign debt rating was in jeopardy.

Last year before Greece’s debt problems made headlines, bullion went into deep correction and fell to $1044 level from $1226. But as Greece went ahead with bailout package, gold rose to new highs. Similar scenario was seen late last year at times of Irish bailout package when gold retreated to 1320s from $1424 but soon after Ireland agreed to seek help from IMF and EU, precious metal made new highs once again. Although default risk has somewhat been abated following the auctions but issue has not been resolved completely. Unless EU comes up with a concrete plan to resolve the matter, debt contagion fear will always stay in the back drop and will make its way back to haunt European common currency and prospects of sustained economic recovery.

What Next?

Spot gold has managed to hold well as compared to gold Futures, which suggest strong physical demand mainly in India and China. Both countries are the biggest gold consumers in the world and recent dip in prices has sparked the love trade among bullion investors. Demand for gold is likely to pick up as much of Asia celebrates the Lunar New Year early next month. Gold purchase in China and other Asian nations rises to its peak during Chinese New Year period and that could provide much needed support for bullion prices in coming days.

Yesterday’s Price Action:

Gold price started its Asian session in a quiet mode and traded in a narrow range throughout the session. Gold price started to make its way down in late Asian trading and losses were accelerated as European markets started their trading day. Gold recovered some of its losses by mid European trade and found further buying momentum at the back of disappointing jobs numbers just before U.S market open and rose to its intraday high of $1393 an ounce. Gold price seesawed during early hours of U.S session but came under strong selling pressure in late hours of the session. Gold fell to its intraday low of $1369.1 an ounce and closed with some mild recovery at $17375.6 an ounce.

Other Metals:

Silver futures for March delivery closed down 28 cents to $29.26 an ounce on Thursday.

Platinum futures for April delivery rose by $20.10 to $1,821.20 an ounce on NYMEX.

Palladium futures for March delivery rose by $6.70 to $813.45 an ounce.

N.Y. Copper for March delivery closed down 3 cents $4.38 a pound on Thursday.

Gold (News and Views):

1272.186 tons on January 10th up from 1271.164.

Factors Affecting Gold Price Yesterday (Analysts View):

Meanwhile, BullionVault's head of research Adrian Ash notes that profit taking by Western funds after the year-end has met "massive" demand from China ahead of the Chinese New Year holiday that begins on Feb. 3.

"Everyone we speak to says Chinese dealers will take all the gold they can get at these prices."

The bond auctions “reduced safe-haven demand for gold,” said Jim Steel, an analyst with HSBC in New York. Steel was bullish on gold in the long term, but said “for now a lot will depend on how the European debt crisis plays out.”

Talk of inflation in the European Union also helped to keep gold afloat. The European Central Bank’s statement was viewed as more “hawkish” than the market expected, analysts at Barclays Capital said in a note to clients.

“It reflects the worsening inflation outlook for 2011 .... as well as a greater level of confidence in the economic recovery,” they said.

“The bullish case for gold took a hit after the Portuguese debt auction yesterday,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.

Gold Future Outlook:

Kitco senior analyst Jon Nadler said gold prices could hop if signs of discord between the U.S. and China arise amid Chinese President Hu Jintao's visit to the White House next week. However, he thinks that it's more likely that the nations' leaders will stick to cooperative dialogue.

Nadler said to turn bullish again, gold needs to overcome $1,390 an ounce and not break support under $1,360.

"I would look for gold to stay in this trading range until we get a new piece of news," said Casimir Capital managing director Wayne Atwell.

James DiGeorgia, the founder and editor of Gold & Energy Advisor said gold managed to push above its 50-day moving average of about $1,384 Tuesday, and as long as the yellow metal stays at these levels, it could again rise above $1,400.

"The big kahuna I see on the horizon next week will be retail sales for December," Chuck Butler, President of EverBank said. "If retail sales do disappoint ... we could very well see spot gold back to $1,400.”

Metals consultancy GFMS said gold could trade as high as $1,500 by midyear, and as high as $1,600 at the end of 2011. Gold’s mild correction so far this year is no indication the metal is on its way down long-term, the London-based consultancy said.

Technical analysis (by Jim Wyckoff):

Technically, February Comex gold futures prices closed near mid-range in choppy intra-day Thursday. Gold's inability to make solid gains this week, amid the lower U.S. dollar index and rallies in other commodity markets, is worrisome to the gold market bulls. A potentially bearish head-and-shoulders top reversal pattern is still in place on the daily bar chart.

The gold market bulls do still have the overall near-term and longer-term technical advantage. Prices have been trading sideways at higher price levels for around three months.

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 last week's low of $1,352.70.

First resistance is seen at Thursday's high of $1,392.90 and then at $1,400.00.

Support is seen at Thursday's low of $1,377.20 and then at this week's low of $1,365.00.

Wyckoff's Market Rating: 7.0.

Daily Gold and Silver Expected Range:

Gold: US$1362- $1395

Silver: US$28.05 - $29.70