Commodities » Precious Metals

Gold and silver daily commentary (July 16, 2010)

By Nell Sloane

Equity markets in Asia were generally lower, but stock indices in Europe are mixed during overnight trading. US equity indices have moved slightly higher during the initial Friday morning trading action. The Dollar has moved lower against most of the major currencies going into the US opening. The head of the IMF said that the results of the Euro zone bank stress tests would show all major European banks have sufficient capital. A containment cap that BP placed on a leaking well in the Gulf of Mexico has completely stopped the flow of oil for now. The Japanese Industry Activities index for May was down 0.9%, lower than forecast. The Euro zone Foreign Trade deficit for May was 3.4 billion Euros, much weaker than expected. Today's US economic numbers include the June Consumer Price Index to be released at 7:30 AM, and a private survey of Consumer Sentiment released around 9:00 AM

GOLD MARKET FUNDAMENTALS:

Despite fresh new lows in the dollar overnight, the gold market forged some sloppy to slightly weaker price action in the early Friday morning US trade. The gold trade also saw evidence of higher production forecasts from an Australian gold miner overnight, but the gold trade doesn't seem to be that interested in physical supply side stories. Some traders attribute the weakness in gold prices from this week's  highs to a consistent decline in Euro zone debt threats, while others point the blame towards the evidence of slowing from the US economy. It is a good bet that a bigger than expected decline in the US PPI report in the prior trading session prompted some deflationary long liquidation in gold. On the other hand, the gold market doesseem to be getting some residual bargain-hunting buying interest because of the decline in the flight-to-quality standing of the US dollar. With another monthly inflation reading due out from the US this morning, the view for inflation might not be expected to do any favors for the bull camp today, especially since the Fed's Lacker in a speech overnight, revised his 2010 US growth forecasts downward. Some analysts continue to think that the direction of the US equity market is destined to be a driving force for gold prices again today. Comex Gold Stocks were 11.041 million ounces, up 64,027 ounces. The gold market appears to have a weak downward bias in place in the early going today. However, we don't detect a significant vulnerability in the gold market today, as weakness in the Dollar should discourage some sellers of gold. Since the direction of the gold market might be determined by the actio n in the equity markets, it wouldn't seem like the bull camp is poised to fully regain control early today. However, gold traders should take a good look at the impact of the US corporate earnings reports, as they might influence gold prices later this morning. We suspect that the October gold contract will test the $1,200 support level today, but without a 180 degree shift in equities, we doubt that resistance up at $1,220.80 will be tested today.

 
SILVER MARKET FUNDAMENTALS:

The silver market bulls will suggest that September silver contract has managed to respect a pattern of higher lows and higher highs this week, while the bear camp in silver will point out that the market hasn't been able to sustain a move above the $18.50 level on the charts. The bear camp also seems to be playing up the prospect of slowing in the US economy and the prospect of weakness in physical commodities because of the slackening macro economic view from the US numbers. The silver market might have been supported in the prior trading session from private brokerage firm price forecasts that effectively lifted upside price targets for the metal. However, the gold market and the equity markets continue to be major forces for silver prices, with weakness in the Dollar providing some cover against the news of slowing in the US economy. The 50-day moving average in the September silver contract this morning is seen above the current market at $18.42. Comex Silver Stocks were 111.815 million ounces, down 471,597 ounces. Silver stocks have declined 15 of the last 20 days. The trend in silver technically remains positive, with a pattern of higher lows and higher highs, but momentum isn't exactly impressive. With the silver and equity markets getting only minimal support from the GE earnings early today, we have to suggest that the silver bulls just lost out on one of three major US earnings reports that will be released today. Some might suggest that a silver market focus on corporate earnings is a stretch, but in a market impacted by slowing growth views, almost any news is considered fair game. The bulls might have an technical edge in silver today, as long as the September silver contract can get through the morning trade with prices holding above $the 18.26 level.

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) 07/16/2010: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. A positive signal for trend short-term was given on a close over the 9-bar moving average. The close over the pivot swing is a somewhat positive setup. The near-term upside target is at 1223.5. The next area of resistance is around 1216.2 and 1223.5, while 1st support hits today at 1202.6 and below there at 1196.4.

COMEX SILVER (SEP) 07/16/2010: The market now above the 40-day moving average suggests the longer-term trend has turned up. Positive momentum studies in the neutral zone will tend to reinforce higher price action. The close above the 9-day moving average is a positive short-term indicator for trend. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside objective is at 1870.8. The next area of resistance is around 1851.7 and 1870.8, while 1st support hits today at 1815.3 and below there at 1797.9.