Commodities » Precious Metals

Gold and silver daily commentary (March 17, 2010)

By Nell Sloane

The decision by the FOMC to keep U.S. benchmark interest rates unchanged yesterday has given follow-through strength to metals prices during the international overnight trade. Clearly a downside breakout in the Dollar overnight has given the bull camp in metals an additional lift. So far, concerns of a trade rift between the US and China could eventually lend some support to the Dollar, but in the near term it would seem like the market sees the US calls for a higher yuan, as a signal that China will probably be forced to raise the value of its currency again. The markets will be watching for the release of U.S. Producer Prices this morning, as well as the testimony from US Fed Chairman Bernanke later today. However, the markets have already seen a somewhat favorable UK jobless reading and that has apparently lent fresh support to precious metals and a host of physical commodity markets. Typically one might expect a contraction in US PPI readings to be a negative to gold and silver prices, but in the current condition, the trade might simply see low inflation readings as further justification for leaving US rates low and they might also see soft PPI figures as additional justification for an even weaker US Dollar ahead.

GOLD MARKET FUNDAMENTALS:

April gold has initially managed another new high for the move but hasn't managed to take out the March 8th highs of $1,138 in the early Wednesday trade. Clearly currency related action is giving the bull camp a definitive edge, but it is also possible that part of the recent gains are the result of anecdotal global recovery views from the prior trading session. Apparently a number of physical commodity markets were lifted yesterday in the wake of talk that global demand for industrial commodities like oil and raw materials was poised to rise and that in turn seemed to help the markets discount the slack US housing starts and permits figures. With the added benefit of the US Fed suggesting that rates were going to be left on hold and with the Fed hinting at a stabilization of the US jobs situation, one could suggest that low rates are going to be allowed to remain in place, even in the face of positive growth! Other traders suggest that the rise in oil prices this week is another element feeding the bull case. Therefore the bear camp is left with the hope that actions from the US Congress will result in some form of US/China trade war, which in turn might serve to lift the Dollar. Some players might even argue that a US/China trade battle would simply add pressure the Dollar. Given the bullish posture in the gold market this morning, the trade probably won't be overly concerned about reports of slack Indian gold demand overnight. No reason to take control of this market away from the bull camp in the Wednesday morning action. In fact, we doubt that weak PPI readings will result in any backlash to prices in the early going. In the end, a definitively weaker US Dollar looks to remain the primary supportive force in the gold market and that in tu n could mean that April gold is headed directly to $1,145 in the coming trading sessions.

SILVER MARKET FUNDAMENTALS:

The silver market has managed another new high for the move, but as of this hour, the May silver contract had not managed to rise above the March 10th high of $17.665. However, as in the gold market, the silver market was clearly benefiting from additional downside pressure in the US Dollar and ongoing strength in energy prices. With silver and other physical commodity markets managing to quickly shake off disappointing US housing starts and permits data yesterday and in turn embracing anecdotal stories of improving global demand for raw materials, it would seem like silver is garnering some of its upward mobility off classic recovery views. In the end, strength in energy prices and the weakness in the US Dollar appears to be the main forces behind the silver bull's case. At least in the near term, the silver market looks to be taking a large amount of direction from the Dollar, equities and the energy complex. Like the gold market, many silver traders don't expect much of a reaction in silver prices in the wake of the US PPI release later this morning. No reason to take control away from the bull camp in silver in the early Wednesday trade. In fact, with more energy gains, a weaker Dollar and initially higher equities, the bull camp in silver would appear to have a number of outside market forces in its favor today. In short, we see little in the way of resistance in the May silver contract until $17.665 and perhaps not until even numbers up at $18.00. In the end, there doesn't appear to be a robust recovery view in place, but the silver trade appears to be happy with even a gradual recovery.

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) 03/17/2010: The market now above the 60-day moving average suggests the longer-term trend has turned up. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next downside objective is 1102.2. The next area of resistance is around 1138.5 and 1144.5, while 1st support hits today at 1117.4 and below there at 1102.2.

COMEX SILVER (MAY) 03/17/2010: The daily stochastics have crossed over up which is a bullish indication. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The close above the 9-day moving average is a positive short-term indicator for trend. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The near-term upside objective is at 1774.8. The next area of resistance is around 1763.7 and 1774.8, while 1st support hits today at 1727.3 and below there at 1701.9.