Gold Finished Lower for Fourth Straight Session
07 Jan 2011 | 1st resistance | 2nd resistance | 3rd resistance |
Today’s resistance US$ | 1379 | 1387 | 1395 |
1st support | 2nd support | 3rd support | |
Today’s support US$ | 1364 | 1356 | 1348 |
Today’s pivot point US$ | 1372 |
The Day’s Story:
Gold continued to fall on Thursday and ended its day 0.5% lower as stronger U.S dollar and sharply lower Crude Oil prices weighed on bullion. It was a quiet trading day with low volumes and gold remained stuck in a narrow trading range. Gold has lost almost $50 of its value since the start of New Year and much of this price fall is contributed by the profit taking after the strong gains made by precious metal in last week of December. Strong economic data also halted any upside in yellow metal as better economic outlook boosted risk appetite and investors seek better yielding assets. Gold lags behind in this regard as it pays no interest or dividend. Expect volatile trading conditions before U.S market open as Non-Farm payroll numbers are revealed. Better than expected numbers could cause further correction in gold prices as better economic conditions diminish gold's safe haven appeal.
Stocks in U.S ended mixed on Thursday as investors mulled a slightly disappointing initial jobless numbers and below expectations same store retail sales numbers. The Dow Jones closed down 26 points at 11697; S&P 500 finished 3 point lower at 1273 while NASDAQ rose by 8 points to finish its day at 2710. 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 starting bell, Labor department reported Initial Jobless claims rose 18,000 to 409,000 for last week of December against market expectations of 405,000. Some stores reported disappointing sales figures for month of December. More stores will come out with their sales figures before market open today although dismal figures are expected due to extreme weather conditions in December which kept consumers behind doors. Stocks in Europe ended mixed with Britain’s FTSE 100 closing down 0.4% while DAX in Germany rose 0.6% and France's CAC 40 was unchanged.
U.S. dollar index which measures the dollar against six major currencies ended its day with further gains making it third straight session of advances as recent 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.
Dollar recent gains are precious metal bearish and recent gains in greenback have provided strong upside technical momentum. Euro extended its losses from previous day against U.S dollar. Gold price took its lead 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 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.
All eyes are on Non-Farm Payroll report due to be released today as it will determine dollar’s and gold’s direction in the short term. 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 $1379.8 an ounce during early European session. Gold price started to make its way down as European session progressed. Losses were accelerated just before U.S market open and gold fell to its intraday low of $13643 an ounce in morning U.S session. Gold found its support at these levels and pared some of its intraday losses during rest of the session. Gold finished its day with 0.5% loss at $1371.3 an ounce.
Other Metals:
Silver futures for March delivery closed down 7 cents to $29.13 an ounce on Thursday.
Platinum futures for April delivery rose by $1.00 to $1,735.10 an ounce on NYMEX.
Palladium futures for March delivery fell $12.40 to $762.90 an ounce.
N.Y. Copper for March delivery closed down 8 cents $4.33 a pound on Thursday.
Gold (News and Views):
February Comex gold closed down 2.00 at $1,371.70 an ounce on Thursday. The London P.M. gold fixing was $1,368.50 on Thursday compared to its previous P.M fixing $1,368.00. The world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, said its holdings fell to 1272.70 tons on January 06 down from 1276.48.
The dollar index, which measures the U.S. currency against a basket of six major currencies, rose 0.71 to 80.93 on Thursday. Crude Oil for January delivery rose by $1.74 to $88.56 on Thursday 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. Barclays Capital notes in its daily commodity briefing that "gold ETP holdings fell by 3.4 tons [Thursday] to 2133.7 tons across the 24 physical products [they] track." Trading volume steadied after noticeably busier sessions earlier this week. U.S. gold futures volume was 5 percent above its 30-day average.Factors Affecting Gold Price Yesterday:
"The high volume distribution and failed breakouts into new highs is indicating institutional selling," says Jeb Handwerger, editor of GoldStockTrades.com.
“We still got a little bit of [repositioning] going on, just a little profit-taking,” said James Moore, a London-based analyst with TheBullionDesk.com.
But the big-picture outlook for gold is still supportive, TheBullionDesk’s Moore said. “Interest rates remain historically low and the debt situation in Europe is still very delicate,” he said.
“Gold may be at the cusp of the end of the bull rally,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Things are going well for the economy, and once interest rates start to rise, gold has to come down.”
Gold’s losses were limited on investor demand for a hedge against the prospects of accelerating inflation, said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.
“You’re at the bottom of the trading range, and so there will be bargain hunters,” said McGhee. “If all the jobs numbers come to fruition, there will be some element of deflation, and the initial sellers in gold this week will become buyers.”
"There is always the fear that once the rebound in the U.S. gets cemented and attracts higher interest rates, investors start shifting money out of gold and into equities," said Mitsubishi analyst Matthew Turner.
Gold Future Outlook:
Handwerger says a break below the 50-day moving average could trigger more sell orders, where traders are forced to sell to lock in profits, and prices could trend down to $1,275-$1,250.
Like other traders, Handwerger is holding long-term positions but selling the rest and will only buy gold again once the correction shakes out. Without this new money in the market, gold prices will have a tough time stabilizing.
Jon Nadler, senior analyst at Kitco.com, warned of an investor sea change and that since "investment has in fact become the dominant and most manifest component of the gold market equation" radical and fast downward momentum could result.
Gold's recent sell-off could point to the so-called "hot money," trader money, coming out of the market. Nadler believes that gold is in store for a more fundamental shift near the end of 2011.
Barclays Capital on Thursday released its prediction for gold prices in 2011. Gold is to average $1,495 an ounce this year and trade as high as $1,620 an ounce, the bank said.
“We expect investment demand to propel gold prices to fresh record highs this year, while its fundamentals are unlikely to drag prices lower. Physical demand for gold has softened but remains healthy for the time of year,” precious metals analyst Suki Cooper wrote in a note Thursday.
"The debt problems in the euro zone's periphery haven't gone way... A tussle over the U.S. debt ceiling has the potential to further roil markets, lending support to gold in the next 2-3 months," said Peter Buchanan, senior economist at CIBC World Markets.
Technical analysis (by Jim Wyckoff):
Technically, February Comex gold futures closed near mid-range Thursday and did close at a fresh three-week low close. While no serious chart damage has occurred this week, the bulls have faded and prices are on the verge of seeing some near-term chart damage. A bearish weekly low close on Friday would produce significant near-term technical 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 do 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 $1,350.00. First resistance is seen at Thursday's high of $1,380.00 and then at $1,385.20.
Support is seen at this week'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$1356- $1400
Silver: US$28.25 - $29.80
