Commodities » Precious Metals

Gold and silver daily commentary (September 02, 2010)

By Nell Sloane

While equity markets in Asia were generally stronger, stock markets in Europe are mixed this morning. U.S. stock indices have posted slight losses during the early Thursday trade. The Dollar is generally weaker against the major currencies during overnight trading, although posting a moderate gain against the Pound. Two officials from the Fed stated separately that further US monetary easing would not solve current Unemployment problems. France and Spain held bond auctions this morning, with both nations seeing higher than expected demand for longer-term debt. Euro zone second quarter GDP was up 1.0 %, higher than forecasts. Euro zone PPI during July was up 4.0% year-on-year, better than expectations. French Unemployment during the second quarter fell to 9.7%, lower than forecasts. Swiss second quarter GDP was up 0.9%, higher than forecasts. US economic numbers released this morning include Weekly Jobless Claims and second quarter Non-Farm Productivity at 7:30 AM, and July Factory Orders and a private survey of Pending Home Sales at 9:00 AM. In addition, Federal Reserve Chairman Bernanke will testify in front of Congress at 8:00 AM.

GOLD MARKET FUNDAMENTALS:

In the end, gold seemed to be knocked back by ideas that overall macro economic uncertainty was running a little too hot. In other words, seeing a much better than expected US ISM reading rekindled some respect for the resiliency of the US economy and while that argument might have to be reinforced with additional data points, that news was apparently enough to prompt some selling of gold. Some traders suggested that news of an IMF gold sale of 16.8 tons for the month of July added to the liquidation effort on Wednesday morning, but that sale wasn't totally out of the blue. All things considered, however, the downside action in gold yesterday wasn't overly impressive as the market did see several better than expected US numbers and a huge compacted US equity market rally. In looking forward, the gold trade will be presented with another active US report slate today and with the international readings overnight generally viewed as positive for growth aspirations, the bear camp would seem to have carried some of yesterday's economic optimism forward. It is possible that gold could garner some support from the prospect of a National Union of Mineworkers strike starting next Monday in South Africa. However, given the looming monthly payroll report on Friday morning, it could be  difficult to fully remove macro economic uncertainty from the gold trade. Comex Gold Stocks were 10.821 million ounces, up 3,892 ounces. Stocks have declined 14 of the last 20 days. We don't think the bull camp is ready to abandon the uptrend pattern that has been in place since late July. Certainly gold could be a little expensive within the uptrend channel because the outlook for the economy is less anxious, and therefore additional positive data points could possibly bring October gold down to uptrend channel support of $1,230.50, with that trend line support climbing to $1,233.30 on Friday. In short, the market can continue to act like economic conditions are holding together, but the real trend determinant is likely to be seen in the wake of the Friday morning data flows. Those that are long futures should probably stay long, but you might consider the purchase of a protective put and perhaps a short call for a two day hold.

SILVER MARKET FUNDAMENTALS:

The silver market generally remained within close proximity to its highs in the early morning action today, and that seems to make silver more resilient than the gold market in the early Thursday trade. While the press is seeing stories suggesting developing physical silver tightness in Asia, the silver market recently doesn't seem to be overly interested in classic supply side developments. However, the silver bulls are suggesting that the performance of silver prices this week highlights silver's dual capacity as a  flight to quality commodity and a physical commodity. Seeing the silver market stand up and remain within striking distance of 4-month highs, in the face of better than expected US data flows, does seems to suggest that silver is indeed paying some attention to its physical supply side fundamentals. Comex Silver Stocks were 110.312 million ounces, down 453,087 ounces. Silver has outperformed gold this week, and that would seem to draw the battle lines between physical and financial assets. In other words, silver seems to need favorable economic readings and positive equity market action to rally, while gold seems to need macro economic uncertainty. With silver bordering on the highest levels since May into an extremely important flow of US data, there might be no small moves in the coming 36 hours of trade. At least in the early action today, we have to give the edge to the bull camp, as favorable readings overnight and the potential for a slight up tick in factory orders has left the bulls somewhat confident. However, as we suggested in the gold coverage today, those long silver should stay long but should also consider the purchase of protective puts and perhaps even the sale of a call as protection against a developing overbought technical positioning.

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) 09/02/2010: A crossover down in the daily stochastics is a bearish signal. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The market's short-term trend is positive on the close above the 9-day moving average. The downside closing price reversal on the daily chart is somewhat negative. The market's close below the pivot swing number is a mildly negative setup. The next downside target is 1235.8. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 1252.3 and 1260.7, while 1st support hits today at 1239.9 and below there at 1235.8.

COMEX SILVER (DEC) 09/02/2010: Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. The daily closing price reversal down is a negative indicator for prices. The market has a slightly positive tilt with the close over the swing pivot. The next upside target is 1961.8. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 1948.7 and 1961.8, while 1st support hits today at 1927.3 and below there at 1918.9.