Gold Ended Marginally Down as Stronger U.S Data Limited Safe Haven Appeal
06 Jan 2011 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1387 | 1396 | 1408 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1366 | 1354 | 1345 |
Today’s pivot point US$ | 1375 |
The Day’s Story:
Gold continued to fall after Tuesday's sharp losses but late bargain hunting helped trim most of its intraday losses. Stronger U.S dollar at the back of some encouraging economic data was the main bearish factor for bullion prices. Gold losses were accelerated by sell stops as price fell below 50 days moving average which are automated orders placed by traders to lock their profits. Crude oil prices rose back above $90 a barrel and did limit downside in precious metal. Gold price remains vulnerable to the downside in short term but any dip in prices will lure bargain hunters to do some discount shopping in yellow metal.
Stocks in U.S ended with moderate gains as DOW rose to fresh 2 years high for third straight session and slew of better than expected economic data in recent weeks continued to boost investors’ confidence. The Dow Jones closed up 32 points at 11723; S&P 500 finished 6 point higher at 1276 while NASDAQ rose by 21 points to finish its day at 2702. 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%. ADP report for month of December fueled investors confidence as it revealed 297,000 jobs were added against analysts’ expectations of 100,000. ADP data stoked optimism that Friday’s jobs report will also bring good news in terms of employment figures. A separate report suggested planned job cuts fell to 530,000 in December to their lowest level in 13 years. After the starting bell, ISM reported that service sector index rose to 57.1 topping forecasts and up from 55 in November. Stocks in Europe ended mixed with Britain’s FTSE 100 closing up by 0.5% while DAX in Germany fell 0.5% and France's CAC 40 slipped 0.6% to finish the day.
U.S. dollar index which measures the dollar against six major currencies ended its day with decent gains as better than expected economic data boosted demand for greenback. Dollar strength pressured bullion’s price because such gains typically affect the value of dollar-denominated commodities as holders of other currencies find it more expensive to make transactions. Euro extended its losses from previous day against U.S dollar. Gold price took its lead from Dollar movement and moved inversely with greenback in yesterday’s session. Inverse correlation between dollar and gold has normalized in recent sessions although both gold and dollar
had an erratic year in terms of negative correlation. In the short term, profit-taking will continue to battle with those money managers who sold gold at the end of 2010 and who will now buy back some of those positions.
The main catalyst for gold prices in 2010 was European debt crisis. Greece was bailed out earlier during the year while IMF and EU rescued Ireland from its worsening debt crisis in December with $85 Billion aid package. Rating agencies downgraded Portugal and Spain debt ratings in last week of the year and they could be next in line to ask for help. European debt contagion fears will continue to provide support for precious metal prices until EU comes up with a permanent solution to the problem. In recent days however, Worries over sovereign debt in Europe and tensions between North and South Korea have eased, limiting gold's appeal as a safe-haven asset.
Portugal raised €500 million in short-term loans but the average yield jumped to 3.83% vs. 2.04%. Higher yields indicate that investors unwillingness to lend money to the country and must be lured by higher interest rates. Another Eurozone debt crisis eruption would only be good for gold as traders seek the metal as a safe haven. Gold prices will also have to factor in a decision from China to let its currency rise 5% against the dollar in 2011. Logic dictates that a stronger yuan would mean a weaker dollar which would be good for gold prices as the two move inversely to each other. A stronger yuan could also increase China's purchasing power giving its citizens more juice to buy gold. Some analysts however, believe that stronger yuan will have a neutral effect on gold prices as it will limit Chinese export leaving less money in people’s hands to buy precious metal.
Investors are waiting for Friday’s Non-Farm Payroll report as it will determine dollar’s and gold’s direction for coming sessions. Market is expecting private sector to add 140,000 jobs in December compared to disappointing 39,000 added in previous month. If report falls below analysts’ expectations, gold will benefit due to its safe haven appeal. A better than expected jobs report however, can take some luster away from precious metal.
Yesterday’s Price Action:
Gold price started its Asian session with quiet trading and hovered around its previous close for most part of Asian session. Gold stayed in a quiet mode during European session as well and peaked to its intraday high of $1383.9 an ounce during European afternoon session. Gold price came under selling pressure as economic data from U.S started filtering in before U.S market open. Dollar index was boosted as a result of the data, sending gold to its intraday low of $1363.8 an ounce at the start of North American session. Gold found its support at these levels pared most of its intraday losses during rest of the session. Gold finished its day with marginal losses at $1378 an ounce.
Other Metals:
Silver futures for March delivery closed down 31 cents to $29.20 an ounce on Wednesday.
Platinum futures for April delivery fell $13.30 to $1,734.10 an ounce on NYMEX.
Palladium futures for March delivery rose by $6.25 to $775.30 an ounce.
N.Y. Copper for March delivery closed up 4 cents $4.41 a pound on Wednesday.
Gold (News and Views):
February Comex gold closed down 5.10 at $1,373.70 an ounce on Wednesday. The London P.M. gold fixing was $1,368.00 on Thursday compared to its previous P.M fixing $1,388.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1280.722 tons on December 30 down from 1284.062 on December 29th. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.78 to 80.22 on Wednesday. Crude Oil for January delivery rose by $0.92 to $90.30 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. Adding to the pressure on silver was the third daily rise in the gold/silver price ratio, which measures the number of ounces of silver needed to buy one ounce of gold. The ratio fell by a third to multi-year lows in 2010 as silver outperformed gold with an 84 percent price rise.Factors Affecting Gold Price Yesterday:
But the lower prices piqued some interest. “You have some investors looking to buy this pullback,” said Matt Zeman, a trader at LaSalle Futures Group in Chicago.
Gold got “overextended” as 2010 drew to a close and it has suffered as investors rebalance their portfolio, Zeman said.
Analysts and investors will be looking closely at settlement prices in the next couple of days to get clues on whether gold’s Bull Run is nearing its end, he said. “There has been some argument today if this is a healthy correction or the beginning of the end,” he said.
There is no doubt that if the economic news continues to come out in a positive manner, that should add more pressure on gold as people feel more comfortable and secure in currencies and other vehicles," said Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management.
The main theme of the past 24 hours has been a heavy unwinding or profit taking on positions that had performed well during holiday-thinned trading, analysts at RBC Capital Markets said. “Foremost in this regard are long commodity positions,” they said.
"A lot of gold's weakness has to do with the fact that investors believe economic performance is going to pick-up as we start 2011," said James Dailey, portfolio manager of the Team Asset Strategy Fund TEAMX.O.
Gold Future Outlook:
HSBC raised its 2011 gold average price forecast to $1,450 an ounce from a previously forecast $1,425 an
ounce, according to a research report made available Wednesday. The bank sees gold at $1,300 an ounce in 2012, up from $1,275 an ounce earlier.
George Gero, senior vice president at RBC Capital Markets, believes this selling might be over soon."Open interest in gold climbed to 592,000 as hedgers entered for the re-balancing week of portfolios." Gero is looking for stabilization if prices hold their current level through Thursday which will give gold a chance to return to basics.
Independent investor Dennis Gartman said that gold would fall toward the $1,300-1,320 area if prices dropped below a trend line connecting bullion's lows in October and November.
Scott Redler, chief strategic officer at T3Live.com, has been trading gold through the SPDR Gold Shares fund since 2008 and is trimming his position while he figures out the next technical move.
"Gold is breaking the recent accelerated uptrend," says Redler. "I would recommend you getting down to tier one at best, if any. We need to figure out the composure moving forward."
Redler is still a believer in higher gold prices for 2011 but is not sure at what level. Gold's next support is in the $1,320 area and then the 200-day moving average of $1,265 an ounce.
Doug Kass, a contributor at RealMoney.com, thinks gold could be one of the worst-performing assets of the year despite the fact that prices popped 400% in the last decade.
Big corrections in gold prices, however, are nothing new. There was one in early 2010 when spot gold prices sank almost $100 from their high in January to their low in February.
Commodity strategists at MF Global said that they believe gold futures will continue to advance this year.
“Given the ongoing issues in Europe, coupled with concern about the [Fed’s so-called quantitative-easing program] and the recent Obama tax compromise, we should see investor demand for gold remaining intact for most of 2011, as confidence in paper currencies continues to erode,” they said.
But “the complex could see its share of rather sharp setbacks, particularly if various crises force investors to seek the safety of the dollar,” the MF strategists said.
Technical analysis (by Jim Wyckoff):
Technically, February Comex gold futures prices closed near mid-range today and hit a fresh three-week low. While no serious chart damage has occurred this week, the gold bulls have faded and prices are on the verge of seeing some near-term chart damage. This week's selling pressure does raise the specter of a bearish head-and-shoulders top pattern forming on the daily bar chart, if selling pressure persists in the near term.
The gold market bulls still have the overall near-term technical advantage. An overall five-month-old uptrend is still in place on the daily bar chart, but now just barely.
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 $1,360.00. First resistance is seen at $1,380.00 and then at Wednesday's high of $1,385.20.
Support is seen at Wednesday's low of $1,364.00 and then at $1,360.00.
Wyckoff's Market Rating: 6.5.
Daily Gold and Silver Expected Range:
Gold: US$1360- $1400
Silver: US$28.55 - $30.20
