Gold Finished A Tad Higher As Dollar Weakened
20 Jan 2011 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1378 | 1385 | 1392 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1363 | 1357 | 1349 |
Today’s pivot point US$ | 1371 |
The Day’s Story:
Gold finished a tad higher on Wednesday but off its earlier highs as many commodity markets including crude oil underwent mild sell off. Weakening U.S dollar helped gold stay above its break even level. According to a report, strong Asian demand for bullion supported the prices as gold lovers in China and India found the latest dip in prices an opportunity to buy precious metal at discount. Some support for precious metal came as economic data from U.S came below market expectations. Gold prices rallied during Asian session but quick profit taking saw most of those gains trimmed as day progressed. In the absence of a catalyst, precious metal has not been able to break away from its narrowly traded range since the start of this year. A successful break above or below those levels will only determine gold’s next big move. Gold has declined for last two weeks and is down by around 4% this month.
Commodity markets will be keeping a close eye at Chinese inflation data today as inflationary pressure in World second biggest economy has been building up in recent months. Chinese Government has increased Reserve Requirement Ratio for its banks several times in last few months along with key interest rate twice since October in order to reduce borrowing and cap rising inflation. If data suggests those measures have failed to tame inflation then we can expects further measures from Chinese Government in coming weeks which will be a bearish factor for precious metals. Gold has long been considered as a hedge against inflation. In real sense it is a hedge against negative real interest rates, the inflation rate minus the interest rate. A negative interest rate situation emerges when the local currency is worth less and gold, which provides no dividend or interest, retains its value and is worth more.
Stock markets in U.S ended in red as lower than expected revenue from Goldman Sachs and below expectation projected earnings from American Express disappointed investors who decided to take a back step from recent rally in stocks. Dow Jones closed down 12 points at 11825.29; S&P 500 finished 13 points lower at 1281.92 while NASDAQ declined 40 points to finish its day at 2725.36. Both S&P 500 and NASDAQ suffered their worse losses since November 16th last year. Before starting bell, Commerce Department reported that U.S. housing starts fell 4.3 percent to a 529,000 annual rate last month, the lowest since October 2009. Stocks in Europe also ended lower with Britain’s FTSE 100 closing down 1.32%, DAX in Germany finished with the losses of 0.85% and France's CAC 40 fell 0.90%.
Investors’ main focus for this week has been the earning reports from some big name companies on Wall Street and Tech sector. Citi reported disappointing earnings Tuesday but Apple and IBM came out with record profits after the closing bell boosting optimism among investors who believe 2011 is going to be a better year in terms of economic recovery. Wall Street’s biggest bank Goldman Sachs also came out with dismal figures in terms of its revenue while American Express Co. projected earnings also failed to impress investors. Morgan Stanley, Bank of America and Wells Fargo are the big names left to report their last quarter earnings this week while tech giant Google will also come out with their quarterly results. Investors will also take in the latest readings on initial jobless claims before starting bell on Thursday, which could provide some direction to bullion prices in today’s trading.
Market will also pay a close attention to Chinese President’s 4 days visit to U.S starting Wednesday in which among other important issues, Yuan devaluation talks will take center stage. A group of U.S senators is mounting pressure on Obama administration to take decisive action against China if it does not agree to appreciate its currency. President Hu in a recent written interview with The Washington Post and The Wall Street Journal on Monday rejected such suggestions and made it clear he did not accept U.S. arguments the yuan currency is undervalued. In recent developments, both countries have reached billions of dollars worth of deals to boost economic co-operation.
U.S. dollar index, which measures the dollar against six major currencies, ended its day in red again and hit a fresh two months low. Euro rose sharply against its U.S counterpart and finished its day at 8 week high as investors put their confidence behind Europe common currency after successful bond auctions of debt stricken countries in recent days. Investors also bought euros in anticipation that European officials will reach a concrete solution to navigate the debt crisis, which has plagued the Euro and economic recovery in the region for most part of last year. Further push for euro came as Portugal successfully raised €750 million in 12 months funding with an average yield of 4.02%, 1.25% less than its previous auction. Gold has suffered badly on charts after its recent losses, which is a bullish factor for precious metals and other assets denominated in U.S dollars.
Gold's average hourly inverse correlation with the dollar tightened to its strongest level in about a week. 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.
What Next?
The spot price is also stronger than the futures price, which points to strong physical buying most likely from emerging-market countries like India and China where inflation is high. Gold purchase in China and other Asian nations celebrating Chinese New Year rises to its peak during this period and that could provide much needed push to bullion prices in coming days. Latest dip in prices have attracted many buyers from China ahead of their New Year celebrations and similar trend is expected to continue until first week of February when Year of Rabbit kicks off.
Options expiration isn't until the end of the month but volatility could still be the name of the game as traders either let their contracts expire or roll them over.
Yesterday’s Price Action:
Gold price started its Asian session with minor gains and remained buoyant throughout the session. Gains were boosted in later part of Asian session when European markets opened for their trading day. Gold price peaked to its intraday high of $1379.1 an ounce by mid European trade. Bullion faced some headwinds just before U.S market open and pared its intraday gains in early hours of U.S session. Gold remained under pressure and continued to move towards South during U.S session. After falling briefly in red zone, precious metal managed to finish its day with minor gains. Bullion finished its day at $1369 an ounce compared to its previous close of $1368 an ounce.
Other Metals:
Silver futures for March delivery closed down 11 cents to $28.80 an ounce on Wednesday.
Platinum futures for April delivery rose by $9.80 to $1,838.10 an ounce on NYMEX.
Palladium futures for March delivery rose by 9.30 to $819.75 an ounce.
N.Y. Copper for March delivery closed down 6 cents $4.37 a pound on Wednesday.
Gold (News and Views):
February Comex gold closed up 2.00 at $1,370.20 an ounce on Wednesday. The London P.M. gold fixing was $1,372.00 on Wednesday compared to its previous P.M fixing $1,369.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1259.325 tons on January 14th down from 1265.093 a day earlier.
The dollar index, which measures the U.S. currency against a basket of six major currencies, fell 0.38 to 78.63 on Wednesday. Crude Oil for February delivery fell $0.52 to $90.86 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. According to Reuters, the Hong Kong press said Wednesday that consumer prices in China rose to 4.6% in December vs. a year ago, which is less than its 5.1% reading in November. China reportedly grew 10.3% in 2010. The official numbers won't come out until Thursday but if the reading is accurate it shows that inflation isn't as high as previously thought, which could take pressure off the country to raise interest rates. Turnover in U.S. gold futures totaled 150,000 lots, 4 percent below the 30-day averageFactors Affecting Gold Price Yesterday (Analysts View):
“Gold is higher with renewed dollar weakness,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “Labor and housing remain the thorn in the side of the domestic recovery. The Fed may not be raising rates based on the data we’re seeing.”
"Given that we're now in the run-up to the Lunar holidays, we have seen some strong physical demand materializing in China and reports about bar premiums trading at two-year highs and mint shortages, so there's good physical demand on the downside providing a cushion to prices," said Barclays Capital analyst Suki Cooper.
George Gero, vice president at RBC Capital Markets, also notes that ETFS Physical Asian Gold (AGOL), which launched on Friday, helped physical demand, as gold was needed to fulfill orders. The ETF stores its gold in Singapore.
"You don't always have to be in a metals trade," argues T3Live.com's Scott Redler, "you need to be where the action is. You should have a percentage of your portfolio ... in the metals" but you can change that percentage. Redler sees the focus more on technology and the financials rather than the metals.
Gold Future Outlook:
Gold is continuing to bounce from its recent correction lower. “We’re starting to find a little bit of a base here,” says Mike Zarembski, senior commodities analyst with OptionsXpress. “If the dollar stays as weak as it has been, we could see the market again crest above $1,400.” This, in turn, could fuel even further technical-chart buying. Many traders who previously may have been “on the fence” about buying gold appear to be viewing the recent pullback as a “buying opportunity,” Zarembski says. Plus, the Chinese New Year holiday is approaching. “So we may be seeing a little bit of buying from Asian markets before that,” Zarembski says
Scott Redler, chief strategic officer for T3Live.com, says that gold has lost its identity a bit and it's no longer a fear trade.
"I think gold could regain this identity as we go into the second quarter" as debt issues in U.S. states and controversy on raising the debt ceiling put money issues in the foreground.
February gold futures prices are holding stoutly above the $1,350 an ounce area, even as speculators exited their long positions last week, says Ken Morrison of Morrison on the Markets. That's a short-term positive sign for bulls. "The inability to break and close below the key support at $1,350 suggests to me at least one more rally to $1,400 remains in the cards," he says.
"Long term, as long as the Fed continues to pump money into the system [and] there are problems in the Eurozone," argues Phil Streible, senior market strategist at Lind-Waldock, "I think gold will continue to catch a bid."
Peter Buchanan, senior economist at CIBC World Markets said that European countries are not out of the wood yet regarding their burgeoning debt.
"Their debts are at such a high level that there is a good probability at some point we are going to see them restructuring their debt, which is going to benefit gold," Buchanan said.
Technical Analysis (by Jim Wyckoff):
Technically, February gold futures closed near mid-range Wednesday and saw more short covering and bargain hunting. Gold bulls still have more work to do in the near term to regain upside near-term technical momentum. 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.
Gold bulls' next near-term upside technical objective is to produce a close above solid technical resistance at last week's high of $1,392.90.
Bears' next near-term downside price objective is closing prices below solid technical support at the January low of $1,352.70.
First resistance is seen at Wednesday's high of $1,378.90 and then at $1,385.00.
Support is seen at Wednesday's low of $1,365.50 and then at the December low of $1,361.60.
Wyckoff's Market Rating: 6.5.
Daily Gold and Silver Expected Range:
Gold: US$1356- $1393
Silver: US$28.00 - $29.70
