Commodities » Precious Metals

Gold and silver daily commentary (March 11, 2010)

By Nell Sloane

From a big picture perspective, the metals markets enter the early Thursday US trade with what appears to be a slightly upbeat macro economic tilt. In fact, some initial strength in the Euro and Pound overnight seems to suggest that the currency markets are showing signs of an increase in risk appetites again. With the Chinese floating favorable economic data overnight and that data flow actually fostering inflationary expectations instead of growth views, that would seem to be a 180 degree shift from the fears of a failed recovery threat in China from several weeks ago. As least in the early going today, concerns toward the Greece and UK debt situations appear to be tamped down again and that in turn appears to have put the US Dollar under some initial pressure. In looking forward, the metals trade will technically see the first noted scheduled data flow of the week from the US, in the form of the US claims report. With some market players suggesting that February activity was restricted due to adverse weather, some players are suggesting that today's claims figures could be the first data points that are out from under the negative influences of severe winter weather. The market will also see US Trade Balance readings and the results of a 30 Year Bond auction.

GOLD MARKET FUNDAMENTALS:

The bull camp will probably try to play up news that South African gold production for the month of January forged another noted year over year decline. However, news of sagging South African gold production is not new news and even with the year over year decline in output coming in north of 18%, the gold trade just hasn't given patently bullish supply side news that much credence lately. Some players have suggested that falling gold production will be given more credence when the trade begins to accept the prospect of sustainable global growth. Seeing talk of a possible overheating Chinese economy and a slightly weaker US Dollar would seem to leave the bull camp with a classic fundamental edge early today, but given the lingering weakness in gold prices early today, it would not seem like the early gold trade is embracing typically bullish angles. In retrospect, the gold market showed some surprising reaction to the ebb and flow of the currency markets in the prior trading session and therefore some players are of a mind, that the focus of the gold market is in a state of flux. Typically the gold market would be expected to benefit in the face of favorable US claims figures later this morning, especially if that news causes the Dollar to weaken, but the action yesterday calls that relationship into ques tion. It is difficult to throw off the slightly bearish early tilt in gold prices this morning. Surprisingly the market doesn't seem to be garnering that much support off a slumping Dollar, inflationary views from China and a slight rise in risk appetites. Therefore, the bull camp in gold is missing out on typically supportive news. While we see some prospect for downside work today, the April gold contract should see some form of support at the even number $1,100 level.

SILVER MARKET FUNDAMENTALS:

The silver market this morning has already managed a quasi downside extension on the charts, with the May silver contract falling to the lowest level since March 2nd. The bull camp might be slightly disappointed with a modest rise in daily silver exchange stocks overnight, but it is also possible that the trade will give that news very little attention. The bull camp continues to suggest that silver is holding up better than gold on its charts and therefore it is possible that the silver trade will see the Tuesday low of $16.875 as some form of pivot point price. However, weakness in copper and platinum prices early today, would seem to rob the silver market of the support that was seen from those markets earlier in the week. The silver bulls probably hope for something supportive from the US claims data this morning, especially if that data serves to push up the Euro and weaken the US Dollar. The May silver contract comes into the early Thursday trade, right on its 50 day moving average of $16.89. The path of least resistance continues to point downward today in silver, but we don't get the sense that silver prices are poised to fall sharply. In fact, silver could easily get some support from the US numbers and also from a further slide in the Dollar, However, after yesterday's counterintuitive action in silver, we aren't sure that a weaker Dollar will actually lend support to silver and gold prices.

METALS TECHNICAL OUTLOOK:

Note: Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report.

COMEX GOLD (APR) 03/11/2010: The close below the 60-day moving average is an indication the longer-term trend has turned down. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The downside closing price reversal on the daily chart is somewhat negative. The market setup is somewhat negative with the close under the 1st swing support. The next downside target is now at 1086.9. The next area of resistance is around 1121.0 and 1137.2, while 1st support hits today at 1095.9 and below there at 1086.9.

COMEX SILVER (MAY) 03/11/2010: The daily stochastics have crossed over down which is a bearish indication. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The market's short-term trend is negative as the close remains below the 9-day moving average. The daily closing price reversal down is a negative indicator for prices. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is 1642.7. Short-term indicators on the defensive. Consider selling an intraday bounce. The next area of resistance is around 1736.2 and 1787.6, while 1st support hits today at 1663.8 and below there at 1642.7.