Gold Finished Lower for Fifth Straight Session
10 Jan 2011 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1381 | 1393 | 1407 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1355 | 1340 | 1329 |
Today’s pivot point US$ | 1367 |
The Day’s Story:
Gold ended marginally lower on Friday after trading both sides of zero line in a roller coaster ride. Friday’s trading was dictated by disappointing Non-Farm payroll numbers, which helped bullion cut its deep intraday losses and sent it to positive territory until a late recovery in greenback dimmed gold’s safe haven appeal. Bullion declined for a fifth day in a row making it the longest losing streak in seven months, although it manage to come off its six-week low after data showed US employers hired fewer workers than expected in December. Gold fell in tandem with other commodities this week as some investors unwound solid gains made on thin volume in gold and other precious metals over the holidays. Gold had been down double digits for the second time this week and then rallied modestly, but settled slightly below the 50-day moving average. Gold rose nearly 3 per cent in December, and was up 29.6 per cent last year.
Stocks in U.S ended lower on Friday as weaker jobs numbers and a court ruling against Wells Fargo and US Bancorp in foreclosure case weighed on Banking stocks that rippled through the broader market. The Dow Jones closed down 23 points at 11674; S&P 500 finished 2 point lower at 1271 while NASDAQ slipped by 7 points to finish its day at 2703. 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%. Before the opening bell, eagerly awaited Non-Farm Payroll report revealed that private sector only added 103,000 jobs in December much lower than the market consensus of somewhere between 150,000 to 200,000. The only positive factor was that the unemployment rate dipped to 9.4% as perhaps people left the work force. Stocks in Europe ended lower as well with Britain’s FTSE 100 closing down 0.6% while DAX in Germany fell 0.5% and France's CAC 40 lost 1% of its value.
U.S. dollar index, which measures the dollar against six major currencies, ended its day with further gains making it fourth straight session of advances. Disappointing jobs figures pressured on dollar initially but investors quickly left those numbers behind and put their trust back in U.S currency, which has been the main bearish factor behind gold’s demise in recent sessions. Dollar strength weighed on 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. US dollar rose to its highest level in nearly four months against the euro on worries about use of euro zone peripheral country bonds as collateral. 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. The greenback has risen 2.3 percent since the end of 2010.
Euro fell to its three months low against greenback ahead of Italian, Portuguese and Spanish bond sale next week. Portuguese government bonds today led losses by securities from Europe’s high-deficit nations amid concern demand for such debt is flagging before auctions to help service maturing obligations this quarter. Gold price took its cue from Dollar movement and moved inversely with greenback now that inverse correlation between dollar and gold has normalized in recent sessions although both gold and dollar had an erratic past 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.
What Next?
Gold price has been hovering below 50-day moving average and traders are now watching closely the next important 100-day moving average level of $1330. Gold prices need to hold above this level or else face an even deeper correction. Traders who sold positions this week will most likely keep cash on the sidelines until they are sure the deep correction is over. Meanwhile, demand for gold is seen as strong and likely to pick up as much of Asia celebrates the Lunar New Year 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 negative territory after a volatile session Thursday. Bullion’s losses were deepened as the session progressed. Gold continued to slide during European session as traders positioned themselves ahead of Jobs report. Gold fell to its intraday low of $1352.6 an ounce just before the jobs numbers but disappointing figures fueled precious metal’s safe haven appeal and it erased all its intraday losses during early hours of U.S session. Gold rose to its intraday high of $1378.9 an ounce by mid U.S session but could not hold on to those gains. Gold pared its gains during final hours of the session and closed its day with minor losses at $1369.3 an ounce, making it a loss of 3.5% on weekly charts.
Other Metals:
Silver futures for March delivery closed down 46 cents to $28.67 an ounce on Friday.
Platinum futures for April delivery rose by $3.20 to $1,738.30 an ounce on NYMEX.
Palladium futures for March delivery fell $6.95 to $755.95 an ounce.
N.Y. Copper for March delivery closed down 5 cents $4.28 a pound on Friday.
Gold (News and Views):
February Comex gold closed down 2.80 at $1,368.90 an ounce on Friday. The London P.M. gold fixing was $1,367.00 on Friday compared to its previous P.M fixing $1,368.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1271.164 tons on January 07 down from 1272.40 a day earlier. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.15 to 81.07 on Friday. Crude Oil for January delivery fell $0.35 to $88.21 on Friday 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. Strong physical demand could also lift prices after recent decline. The head of the Bombay Bullion Association told Reuters that gold imports to India, the world's largest consumer, are likely to jump 64 per cent to 500-550 tons in 2011.Factors Affecting Gold Price Yesterday:
At the $1,350 level, “it was met with some really good buying,” said Scott Meyers, a senior trading analyst with Pioneer Futures, a division of MF Global, in New York.
“The data isn’t strong enough to create inflation nor weak enough to throw us back into a recession,” said Adam Klopfenstein, a senior strategist at Lind-Waldock in Chicago. “You have to play both sides of gold now.” But prices declined as the dollar rose, said Adam Klopfenstein. The market was choppy as portfolio rebalancing is still in effect, he added.
"Money is moving out of bonds and gold into the broader equity market as investors are willing to take on more risks thinking that economic conditions have improved," said Brian Hicks, co-manager of Global Resources Fund of the $2.9 billion fund manager US Global Investors.
Gold Future Outlook:
On the charts, gold has breached below two important support levels, namely its 50-day average at $1,382 an ounce and its December lows at the $1,360s, said Adam Sarhan, chief executive of New York-based Sarhan Capital .
"At this stage of the game, gold is at a very important inflection point. As long as gold holds above the $1,360s, we should be able to see a bounce," Sarhan said.
Asian buyers are paying premiums for gold bars, and the Chinese New Year, a traditional time to buy gold, is likely to keep demand up, analysts at GoldCore said.
Jewelers and bullion dealers “continue to stock up to cater for the growing demand of some 1.3 billion Chinese people. This year inflation has taken off in China and inflation concerns may lead to record demand again this year,” they said.
“As the economy continues to improve, downward pressure will mount on gold,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “There’s less need for a safe-haven asset.”
Friday, February gold futures prices on the Comex division of the New York Mercantile Exchange settled at $1,368.90 an ounce, down 3.7% on the week. If selling continues next week, that support could be broken, with the next psychologically important target of $1,350 seen as important.
Newsom said support is also around $1,317, which is another key technical chart level. A break of that region could mean a retreat to $1,250.
He’s not sure gold prices have bottomed in the short term yet. Buying interest ran out near the highs set last month, and with the dollar rising, it left the metals in a vacuum. “For next week I’m not seeing anything to change that. It would take bearish economic news or the EU to have problems – that would entice safe-haven buying,” he said.
Technical analysis (by David Banister):
There are a few factors I look at to forecast pivot tops and bottoms consistently and a little ahead of the curve when my crystal ball is clear. I look at Sentiment readings, Elliott Wave patterns (As I view them), and Fibonacci relationships and time. If all of these are lining up to give me enough evidence of a convergence and a bottom or top, then I go ahead and make the call or begin to forewarn.
In the case of Gold, we see a really muddy chart pattern over the last several weeks that to me can only be read as toppy after a near $390 rally off the February lows this year. There are no clear Elliott Wave patterns anymore over the past few weeks, and the recent drop from $1422 to the $1360 ranges also doesn’t compute well for me if I’m a bull. I have been on the long side of Gold since February of 2010, with the one intermittent bearish call I made in June before a huge drop.
It looks like now is a good time for Gold and Silver to pause in the long uptrend, which still has about 3-4 years remaining if I’m right. This next pullback is likely to take Gold down to $1270-$1280 and then I will assess from there the next direction and price action. As you can see in the chart below, the recent action is toppy looking and could be read as bearish.
Daily Gold and Silver Expected Range:
Gold: US$1352- $1396
Silver: US$28.05 - $29.72
