Commodities » Precious Metals

Gold and silver daily commentary (September 01, 2010)

By Nell Sloane

Equity markets in Asia and Europe are generally stronger this morning. U.S. stock indices have posted moderate gains during the early Wednesday trade. The Dollar is generally weaker against the major currencies during overnight trading, although posting a slight gain against the Yen. China's official Purchasing Managers Index for August rose to 51.7, in line with expectations. Australia's second quarter GDP was up 1.2%, higher than forecasts. Japanese Housing Starts during July were up 4.3% year-on-year, much higher than expected. German Retail Sales for July were down 0.3%, lower than forecasts. A private survey index of Euro zone Purchasing Managers during August fell to 55.1, in line with expectations. US economic numbers released this morning include a private survey of national Purchasing Managers at 9:00 AM, July Construction Spending at 9:00 AM, and two private Employments surveys early in the session. In addition, a Fed Governor and a regional Fed President will give speeches around mid-session.

GOLD MARKET FUNDAMENTALS:

Even though global equity markets seem to be cheered by Chinese PMI  figures overnight, the gold market supposedly rose off of fresh flight to quality buying. In fact, gold also managed to forge the overnight gains in the wake of some positive economic data from Australia. However, the trade is set to be presented with a long list of varied economic statistics from the US, from private job report estimates and  monthly US auto sales readings, and therefore the recent pattern of weakness in the US numbers is apparently on the minds of some gold traders. The gold market could have been undermined by news that a potential strike by the National Union of Mineworkers (South Africa) for Thursday was called off because of possible progress in  negotiations. However, since the gold market didn't seem to get much upside action off the South African strike threat, the lack of a strike action on Thursday might not be a major negative influence on gold prices. Surprisingly gold is still factoring in economic uncertainty, while US Treasuries, US equities and the Dollar overnight were  sensing a slight downshift in macro economic anxiety. Even more impressive is the fact that gold prices remain edfirm in the face of potentially negative statements from the People's Bank of China that seemed to point out the risks associated with global gold investing. The market also saw news of lower Turkish gold imports for August, but recently the gold market hasn't been overly focused on physical supply and demand side news. In the end, the focus on economic uncertainty will be tested in the wake of an extremely active report schedule today. Comex Gold Stocks were unchanged at 10.817 million ounces. Stocks have declined 14 of the last 20 days. Unless economic uncertainty is thrown off by a "couple" of better than expected US economic readings, it is difficult to take control of the trend away from the bull camp. Certainly the market will be prone to expanded trading ranges directly ahead, but unless the fear of a double dip recession is downgraded as a result of the upcoming data, we don't see the bulls giving up on a retest of the late June highs. Critical support in the October gold contract is now seen at $1,250, with little in the way of resistance seen until the $1,260.70 level

SILVER MARKET FUNDAMENTALS:

The September silver contract has managed to forge a fresh new high for the move overnight, and in the process the silver market reached the highest level since the June 21st spike hig h.Apparently silver is capable of shifting its focus from flight to quality to physical commodity market fundamentals and back again with little fresh news, but in general the market seems to generally be favoring the flight to quality posture. In other words, a number of silver traders continue to explain the gains in silver as a hedge against macro economic uncertainty. It was somewhat telling that silver almost totally discounted news yesterday morning of a 4% increase in Mexican June silver production, as that type of action would seem to confirm that silver is generally tracking safe haven issues as opposed to physical commodity market factors. Given the extremely active US report slate over the coming three trading sessions, one might expect the silver trade to attempt to flesh out its opinion on the direction of the economy soon. Comex Silver Stocks were 110.765 million ounces up 6,708 ounces. With another range up extension overnight, September silver continues to feed off ongoing macro economic uncertainty. Since we don't expect the evidence of slowing to halt quickly, we don't expect the upward grind in silver prices to stop. In fact, a rise above the $19.50 level basis the September silver contract this morning could make the next upside target the early May highs up around $19.72.

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 (DEC) 09/01/2010: 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. The outside day up is a positive signal. The market's close above the 2nd swing resistance number is a bullish indication. The next upside target is 1264.1. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 1258.1 and 1264.1, while 1st support hits today at 1239.9 and below there at 1227.6.

COMEX SILVER (DEC) 09/01/2010: 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. The outside day up is a positive signal. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The near-term upside objective is at 1985.3. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 1967.7 and 1985.3, while 1st support hits today at 1909.3 and below there at 1868.4