Commodities » Precious Metals

Gold and silver daily commentary (June 18, 2010)

By Nell Sloane

Equity markets in Asia were mixed, but European equities are higher this morning which has helped US stock indices to move slightly higher during overnight trading. The Dollar has moved slightly lower against most major currencies during overnight trading. A Chinese official stated that the G20 should back away from pressuring China to revalue their currency, the Yuan. Japan's new government proposed new corporate tax cuts as a way to stimulate the Japanese economy. Officials from BP conclude testimony in front of Congress, while the company itself received a credit rating downgrade. German Producer Price Index for May was up 0.8%, higher than expectations. UK public sector spending during May was 12.0 billion Pounds, lower than forecast. There are no major US economic numbers scheduled for release today.

GOLD MARKET FUNDAMENTALS:

In the action Thursday it seemed as if gold prices were definitively lifted in the wake of soft US economic data and that in turn would seem to suggest that flight to quality buying of gold is coming from a number of different sources. Early in the week gold seemed to be getting most of its lift from Euro zone economic uncertainty but given the slack US numbers the trade seems to have garnered another anxiety argument. Unfortunately for the bull camp, the US economic report slate is empty today and therefore the gold markets direction might be forced to draft off Thursday's psychology. However, with the gold market at the highs yesterday, moving within striking distance of record highs again, that has seemingly fostered a wave of flight to quality type headlines in the Press and that in turn would seem to keep the safe haven argument in play. Comex Gold Stocks were 10.795 million ounces up 3,585 ounces. Gold stocks have declined 11 of the last 20 days. While there doesn't appear to be a specific and fresh anxiety element in the headlines this morning, the fear of slowing in the US and lingering Euro zone debt threats remain in place and that should underpin gold prices at current levels. Up trend channel support is all the way down at $1,230.70 today, with that up trend channel support line rising to $1,234.00 on Monday. At least in the near term, we aren't sure that the safe haven argument for gold can be removed and therefore the path of least resistance looks to remain up in gold. Initial resistance is pegged at $1,250 but a rise in open interest suggests on the recent rally suggests that the gold market has the capacity to forge even more new highs ahead.

SILVER MARKET FUNDAMENTALS:

In retrospect, the silver market this week seems to have been lifted consistently by the flight to quality or safe haven argument. At yesterday's highs, July silver was trading as much as $1.68 an ounce above the early June low and that suggests the flight to quality argument has been well attended. While silver exchange stocks were pegged at 118.295 million ounces yesterday with a decline of 1.2 million ounces, the silver market really hasn't been that interested in physical supply side changes lately. While the bull camp in silver seemed to benefit from patently weak US economic data this week, the US report slate today is empty and that could mean the direction of the US equity market will become a little more important to the silver trade today. Despite some initial profit taking action this morning, the bias in silver prices is generally expected to remain up. Therefore, we wouldn't rule out some back and fill action this morning, as yesterday's range up move was fairly extensive and the rate of climb this month has probably puffed up the overbought status of the market. Initial support is pegged at $18.66 in the July silver, with similar support in the September silver contract seen at $18.72.

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 (AUG) 06/18/2010: 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 market's short-term trend is positive on the close above the 9-day moving average. 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 target is at 1266.3. The next area of resistance is around 1258.1 and 1266.3, while 1st support hits today at 1236.3 and below there at 1222.8.

COMEX SILVER (JUL) 06/18/2010: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The close above the 9-day moving average is a positive short-term indicator for trend. The outside day up and close above the previous day's high is a positive signal. Market positioning is positive with the close over the 1st swing resistance. The next upside target is 1923.3. The next area of resistance is around 1902.2 and 1923.3, while 1st support hits today at 1845.8 and below there at 1810.4.