Commodities » Precious Metals

Gold and silver daily commentary (September 03, 2010)

By Nell Sloane

While equity markets in Asia and Europe are generally stronger this morning, U.S. stock indices are near unchanged levels during the early Friday trade. The Dollar is slightly weaker against most of the major currencies during overnight trading, although posting a slight gain against the Yen. China indicated that their currency reserves have roughly a 65% weighting in US Dollars, 26% in Euros, 5% in Pounds, and 3% in Yen. The White House stated that they are not considering a second stimulus package at this time. Japanese companies cut their capital spending during the second quarter by 1.7%, lower than expectations. Euro zone Retail Sales for July were up 0.1%, higher than forecasts. Swiss CPI for August was up 0.3% year-on- year, slightly above expectations. A private survey index of UK services Purchasing Managers fell to 51.3, muchlower than expected. US economic numbers released this morning include August Non-Farm Payrolls, August Unemployment, August Private Payrolls, and August Average Hourly Earnings at 7:30 AM, and a private survey of non-Manufacturing Purchasing Managers at 9:00 AM. In addition, Federal Reserve regional President Lockhart will give a speech at 9:00 AM.

GOLD MARKET FUNDAMENTALS:

With Indian gold prices slightly higher overnight and nearby gold futures prices this morning trading within relative proximity to their recent highs, the gold bulls don't appear to be that fearful of the US numbers due out later this morning. Apparently portions of the gold trade continue to bank on the prospect of renewed flight to quality buying interest in the wake of the data flows today. However, since gold seemed to be able to track positively with the US equity markets at times this week, there would appear to bemore than one bullish theme or angle working in the gold trade. However, since a portion of the trade has favored the flight to quality or safe haven angle for several weeks, gold is expected to weaken temporarily if the US numbers aren't as bad as some expectations. In retrospect, gold and other metals markets this week have periodically shown a positive correlation with equities and therefore the worst payroll result today, might be a middle of the road number, as that would disappoint the flight to quality crowd and in turn might not allow a rising US equity market to rise even further. Comex Gold Stocks were unchanged at 10.821 million ounces. Stocks have declined 14 of the last 20 days. The gold market this week has managed to shift its focus on a number of occasions and that gives off the impression of a market that is intent on pushing upward on the charts. However, as suggested already the bigg est risk to the bull camp might be a middle of the road number, as economic doubt without economic uncertainty might result in a back and fill setback. In the end, one has to be impressed with the gold market action and it should be difficult to end a bull market today because of a single number. As suggested yesterday, we would be long gold but perhaps protected by a temporary option play. We would remain bullish as long as the December gold contract manages to avoid a trade back below $1,248.00.

SILVER MARKET FUNDAMENTALS:

The silver market comes into the Friday morning action trading just below  the recent highs and 89 cents an ounce above the August lows. Silver appears to periodically be the leadership market in the metals complex, with silver at times seemingly rotating between a flight to quality focus and its physical commodity market standing. In other words, silver seems to be getting buying interest from macro economic uncertainty, but at times this week silver has seen some buying interest off hope that the economy is holding together. Therefore, the bull camp would generally seem to be emboldened by this week's action, but the bear camp is pointing out the fact that this week's gains were made off lower volume than the volume that was seen in the face of the silver gains that were forged in late August. Comex Silver Stocks were 110.222 million ounces down 90,433 ounces. Silver stocks have declined in 11 of the last 20 days. While the trend appears to be up in silver and the market has forged some very impressive action in the face of potentially undermining developments, we have to think that the market is at least partially overbought technically. Certainly silver could spring board to the even number $20.00 level in the face of a not as bad as expected reading today, but a middle of the road number might prompt a profit taking setback later in the session. In conclusion, there is no reason to end the uptrend today, but volatility probably increases through the number this morning.

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) 09/03/2010: The crossover up in the daily stochastics is a bullish signal. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside target is at 1261.4. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 1257.8 and 1261.4, while 1st support hits today at 1248.0 and below there at 1241.7.

COMEX SILVER (DEC) 09/03/2010: Rising stochastics at overbought levels warrant some caution for bulls. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 2001.3. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 1989.2 and 2001.3, while 1st support hits today at 1949.8 and below there at 1922.4.