Gold Rose to Another Record Level As Inflationary Concerns Favored Yellow Metal
07 Dec 2010 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1431 | 1438 | 1449 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1412 | 1401 | 1394 |
Today’s pivot point US$ | 1420 |
The Day’s Story:
Gold extended its Friday's gains and landed in uncharted territory once again (as mentioned in our yesterday's analysis) breaking past its previous all time high record of $1424 set on November 9th. After Monday's disappointing job numbers which boosted gold's safe haven demand, bullion found another push from comments made by Fed's Chairman Bernanke in an interview with CBS that FED would consider expanding its Quantitative Easing program. The announcement fuelled inflation sentiments coupled with ongoing debt worries in European nations helped gold to add further to its value. Stronger dollar could not contain gold's gains as negative correlation between two assets remains fragile. Light economic calendar will cause some sideways moves in gold for coming sessions with slightly upward pressure and any dip in prices will be a Xmas present for bargain hunters. Gold has appreciated 29% this year and poised for its 10th annual gain. Gold has outperformed stocks, currencies and most commodities in this amazing run.
U.S indexes ended mixed after drifting around breakeven point for most of the session as investors showed some concerns over a rather pessimistic view of economy painted by Ben Bernanke in an interview over the weekend. The Dow Jones industrial average fell 20 points to close at 11,362. The S&P 500 fell 2 points to 1,222. The NASDAQ added 3 points to 2,594. Mr. Bernanke told CBS’s 60 Minutes program that it could be 4 or 5 years before the economy is back to a normal unemployment rate. He also said fears of inflation are overstated, and that the central bank could resort to another round of stimulus by buying up Treasuries. Stocks were mainly quiet due to lower than average volume in the absence of any economic data. Commodities stole the limelight from stocks with Oil peaking close to two years high and silver rising to its highest level since 1980 while gold set another record close after breaking its previous all time high of $1424 an ounce. Stocks in Europe had a mixed close with Britain's FTSE 100 rising 0.4%, the DAX in Germany rose 0.1% while France's CAC 40 was unchanged.
In a separate development, Chinese official news agency reported on Thursday that as part of its battle with inflation, China will move to a more "prudent" monetary policy stance next year, the nation's Political Bureau
said. China has already hiked its rate in October and raised Reserve Requirement ratio for its banks twice in November in order to curb rising inflation. Analysts are expecting China to raise its interest rate early next year but if China decided to surprise the market before the end of this year that will be a bearish sign for precious metal and will trigger some profit taking and panic selling.
This week’s economic calendar is fairly light, with the trade balance and consumer confidence out on Friday. Consumer confidence could be given more credence, in a way to compare some of the early views toward holiday spending. European debt problems which were offset by some important economic releases last week may come to forefront once again. Bullion will remain well supported due to ongoing European debt saga and fresh talks about possible FED’s move will provide enough reasons for investors to buy gold. Although China’s move to stabilize inflationary pressure is bearish for gold as it reduces its appeal as a hedge against inflation but analysts believe any such move will not hurt gold prices to a great extent in medium term.
U.S. dollar index snapped its 3 days losing streak and rose against basket of six major currencies. Dollar came under extreme pressure after Friday’s report as talks of QE3 started circling around as a possible move by FED to improve job situation which has been the biggest hurdle on the way to sustain recovery. Pressure on greenback however, was relieved as European debt crisis remain an ongoing concern for European currencies despite European bond yields falling back to relatively safer levels after ECB’s announcement of Bond buying program. Gold was unaffected by stronger dollar and kept rising throughout the session as inverse correlation between two assets took a hit once again. Any relief in euro crisis, similar to what were seen during later part of last week, will push the euro higher and the dollar lower and be good for gold, as the two move inversely to each other. If a debt crisis flares up again and default is floated as an option for some countries, the euro could plummet in value and take gold with it. Safe haven buying, however, should create a floor of support for gold prices.
Recent Price Recap:
Gold price was boosted by Federal Reserve’s $600 Billion QE2 package in early November and crossed above $1400 on November 8th as a reaction to that move. Price peaked to $1424 but entered a correction phase as some profit taking and book squaring sent prices to early 1300 levels. After a shallow correction, gold found support at the back of European debt contagion fears. Further support came as tensions between North and South Korea escalated after North attacked a South Korean Island killing four marines. Gold cut most of its losses last week but remain subdued due to concerns that China may raise its interest rate to curb rising inflation. Stronger US dollar also put a lid on gold’s gains but Friday’s jobs numbers proved to be catalyst bullion had been looking for as investors seek refuge in the safety of precious metal and dumped U.S dollar. Further strength was found at the back of Fed Chairman’s comments which sent prices to their all time high level of $1427.1 an ounce in Monday’s session.
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.
Yesterday’s Price Action:
Gold price started its first session of the week with minor losses and quickly fell to its intraday low of $1408.8 an ounce during early Asian session. Price recovered from there onwards but stayed in negative territory for most of the session. Gold visited green zone briefly at the start of European session but another round of mild profit taking sent prices close to their session low just before U.S market open. Gold pared its intraday losses during U.S session and broke its previous all time high record f $1424 in final hours of the session. Gold peaked to its new record level of $1427.1 an ounce and finished its day at $1423.5 an ounce.
Other Metals:
Silver futures for March delivery closed up 46 cent to $29.73 an ounce on Monday.
Platinum futures for January delivery fell $14.90 to $1,713.60 an ounce on NYMEX.
Palladium futures for March delivery fell $18.70 to $751.40 an ounce.
N.Y. Copper for March delivery closed up 1 cent to $4.01 a pound on Monday.
Gold (News and Views):
February Comex gold closed up $9.90 at $1,416.10 an ounce on Monday. The London P.M. gold fixing was $1,415.25 on Monday compared to its previous P.M fixing $1,403.50. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings rose to 1293.891 tons on December 01 up from 1286.603. The dollar index, which measures the U.S. currency against a basket of six major currencies, rose by 0.50 to 79.63 on Monday. Crude Oil for January delivery fell $0.06 to $89.38 on Monday 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. 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. Managed-money accounts returned to adding to their net-long gold positions, which stand at 182,716. They added 1,544 gross longs and cut 3,903 gross shorts. CFTC data show these speculative accounts are nearly completely long, as the total gross short position is 9,998 contracts. The producer category again saw trimmed positions in gold on both sides, and it remained net-short. Swap dealers cut longs and added to shorts, increasing their net-short position. In the legacy report, speculators, known as non-commercials, increased gross longs and cut gross shorts, pushing up their net-long position to 244,799 contracts. Factors Affecting Gold Price Yesterday:
“Fundamentals are very much bullish for gold,” said Frank Lesh, a trader at FuturePath Trading in Chicago.
“The continuing European debt crisis is on traders’ mind, and that creates the flight-to-safety quality in gold.”
“Metals rallied last week as the U.S. dollar turned lower, fears of the sovereign-debt crisis intensified after Ireland agreed to a bailout, and some good economic news boosted hopes for increased demand,” Mark Leibovit, chief market strategist for VRTrader.com, said in his VR Gold Letter report Monday. “All this uncertainty is driving precious metals higher.”
“Of course, the money creation by the [Federal Reserve] and [European Central Bank] is driving their currencies down and, thus, commodities are rising,” he said.
Commenting on Fed Chairman Ben Bernanke’s remarks, Matt Zeman, a trade at LaSalle Futures Group in Chicago said, “It’s unnerving that he feels we have a need to print more money and pump more money into the system”. “People continue to get away from paper money,” he added.
Gold has been within several dollars of its record high so far Monday. “Precious metals appear to be the main beneficiaries of the present uncertainty on the markets,” says a research note from Commerzbank. “Debt problems in the EU peripheral countries and the Fed’s expansion of the monetary base, as well as the geopolitical risks and robust physical demand from Asia and liquidity injections into commodity markets, are all providing impetus to the prices of Gold & Co.” Commerzbank says.
"With Big Ben ... spouting that kind of stuff about the economy, and the possibility of more [quantatative easing], I'm surprised at the dollar buying," said EverBank World Markets President Chuck Butler in a research note. "I guess it's a bond buying thing, as yields on Treasuries have dropped from Friday morning's levels."
Gold Future Outlook:
“Further currency debasement is the new norm,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago, said before the close of the Comex. “As long as that stands, investors are going to buy metals as a hedge against paper money. Gold has clear sailing to go much further from here.”
Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, has recommended owning gold in foreign currencies to limit exposure to a rally by the dollar.
“Owning gold in this fashion relieves us of exposure to the dollar,” Gartman said. “It takes gold away from being abet against the dollar and to being a bet for gold as a reservable currency.”
Gold probably will advance to $1,500 next year on demand from investors and central banks, Bank of America Merrill Lynch said in a report dated Dec. 3.
Comments from Federal Reserve Chairman Ben Bernanke are supportive for gold, say analysts with Standard Bank. The Fed chief says the central bank could commit even more money to asset purchases, referred to as
quantitative easing, than the $600 billion that policy-setters announced last week. In an interview with CBS News’ “60 Minutes,” Bernanke describes unemployment as a major threat to the U.S. economic recovery. “More liquidity means a further boost for precious metals, especially gold, as well as a weaker dollar,” Standard says.
“Gold, despite hovering at record highs, is likely to edge higher on sovereign concern and growing inflation anxiety, particularly in the EM (emerging markets),” Morgan Stanley says.
Technical Analysis (By Jim Wyckoff):
Technically, February Comex gold futures closed near mid-range Monday, hit a fresh four-week high and are within easy striking distance of the all-time high scored last month. The gold market bulls have the solid near-term technical advantage. There are no early technical clues to suggest a market top is close at hand. A four-month-old uptrend is in place on the daily bar chart.
Gold bulls' next near-term upside technical objective is to produce a close above strong technical resistance at the all-time record high of $1,426.00 in February futures.
Bears' next near-term downside price objective is closing prices below solid technical support at $1,383.00. First resistance is seen at Monday's high of $1,422.40 and then at $1,426.00.
Support is seen at Monday's low of $1,409.80 and then at $1,400.00.
Wyckoff's Market Rating: 8.5.
Chart analysis (By Gary Wagner):
Last Monday’s commentary looked for a continuation of the strong bullish uptrend. This uptrend began with a candlestick pattern we identified on Thursday, November 17th, issuing a buy signal. We are currently still long and are looking for a retest of the record high. We also mentioned that break above 1388 would signal a major breakout; we saw that breakout this last Friday. I currently believe that as this super bull cycle continues, we will see gold trade to new high. The following is how I reached this conclusion.
Chart 1 (below) is a daily gold candle chart. After testing and failing to take out 1388, a flag formation was identified. Last week we advised our subscribers that a breakout was imminent. Although a flag formation can break hard either down or up, we were anticipating the later. Last Tuesday’s significant move truly illustrated the power of the flag formation. It not only broke above the flag but also to 1388 which is the 23 % Fibonacci retracement level. This was the critical target gold needed to trade above thereby ending the possibility of a head and shoulder pattern. Last Friday we saw continued follow through buying as gold traded just dollars shy of the record top.
Chart 2 (below) is daily candle chart with Elliot wave count and projections based upon Fibonacci extensions. I believe that we will see gold continue to trade higher. If it is able to successfully trade above 1424, the next upside target could take gold to 1469 dollars per ounce or as high as 1496.
Daily Gold and Silver Expected Range:
Gold: US$1405- $1438
Silver: US$29.35 - $30.75
