Commodities » Precious Metals

Gold and silver daily commentary (May 21, 2010)

By Nell Sloane

Equity markets in Asia were lower, but European and US stock indices have reversed overnight losses and have moved higher. The Dollar has been slightly higher this morning, mainly against European currencies. The German Parliament approved the EU debt rescue package this morning. Also EU Finance Ministers will discuss tightening budget rules and improving economic policy coordination today. The Bank of Japan announced a new loan scheme for growth industries, while keeping Japanese interest rates unchanged. German first quarter GDP was up 0.2%, in line with expectations. The German IFO Business Confidence index however came in lower than expected at 101.5. UK Public Sector borrowing for April was 10 billion Pounds, lower than expectations. The Euro Zone balance of payments for March was a 1.2 billion surplus, higher than forecast. There are no major US economic numbers due in this morning.

GOLD MARKET FUNDAMENTALS:

The bear camp will probably point to the initial weakness overnight as a sign that they retain control, while the bull camp will suggest that most of the declines were reversed ahead of the US Friday morning action. It is possible that news of a favorable vote in the lower German House on the EU Stabilization plan provided gold and other physical commodity markets with a slight lift. However, with equities seemingly unable to hold initial gains in the wake of the German political news, it would seem like the slow growth or deflation view is still lingering in some markets this morning. At least in the early action today, it would appear that flight to quality fears have remained a partial negative to gold prices, but some players think that coordinated intervention in the currency markets might be seen in the coming trading sessions and given the action in gold this week, intervention might be something that the bull camp hopes to see. However, ongoing weakness in energies and other physical commodity markets this morning seems to be emboldening the bear camp. Comex Gold Stocks were 10.541 million ounces up 64,043 ounces. The gold market gold market seemed to forge a big range down reversal overnight and has seemingly managed to regain and respect critical support of $1,175.00. However, we are not convinced that the negative macro economic track is going to be thrown off just because of a favorable German vote on an aid package that has already failed to provide sustained confidence in the marketplace. We think that intervention is possible but that intervention won't come until there is a reason to react and that might mean yet another big washout in equities and another big dive in physical commodity markets might be in the cards. In short, $1,175 is support but that support is thin and suspect support. It will take a major headline development to alter the down trend pattern in gold.

SILVER MARKET FUNDAMENTALS:

The silver market seemingly outperformed the gold market in the overnight action, as silver avoided a fresh new low for the move. July silver also comes into the Friday US trade sitting initially above the prior closing value. The bull camp in silver might also suggest that silver is seeing some minor outside market support from ongoing gains in the copper market but that influence is partially tempered because of noted weakness in the platinum market. The silver market did see news of an increase in silver production from a minor silver producer and therefore the impact off the supply side of the equation this morning is probably very limited. It would appear that silver continues to garner a significant amount of direction from the equity markets and that suggests silver is still focused on its classic physical commodity market fundamentals and not on flight to quality issues. Comex Silver Stocks were 117.171 million ounces down 49,894 ounces. The silver market has carved out some measure of support on the charts overnight and we suspect that silver is now much closer to a balanced technical position after this week's $1.96 break. However, since we can't give the all clear on the Euro zone debt crisis and the German Lower house vote wasn't a sustainable euphoria event this morning, we have to think that silver prices will remain vulnerable today. However, if there is a temporary reprieve in the equity markets, from the aggressive selling bias that could allow a half hearted bounce back toward the $18.00 level. In order to see a significant bottom in silver prices probably requires a coordinated aggressive statement of support from outside of the EU and IMF.

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 (JUN) 05/21/2010: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The market's short-term trend is negative as the close remains below the 9-day moving average. The market's close below the pivot swing number is a mildly negative setup. The next downside target is 1161.1. The next area of resistance is around 1193.6 and 1207.5, while 1st support hits today at 1170.4 and below there at 1161.1.

COMEX SILVER (JUL) 05/21/2010: The major trend has turned down with the cross over back below the 60-day moving average. Declining momentum studies in the neutral zone will tend to reinforce lower price action. A negative signal for trend short-term was given on a close under the 9-bar moving average. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 1692.7. The next area of resistance is around 1805.7 and 1861.6, while 1st support hits today at 1721.3 and below there at 1692.7.