Commodities » Precious Metals

Gold and silver daily commentary (September 07, 2010)

By Nell Sloane

While equity markets in Asia were mixed, stock markets in Europe are generally weaker this morning, U.S. stock indices are also moderately lower during the early Tuesday trade. The Dollar is stronger against most of the major currencies during overnight trading, although posting losses against the Yen and Swiss. A news story reported that the Euro zone bank stress earlier this year understated the level of sovereign debt holdings. The Bank of Japan kept Japanese interest rates unchanged at their meeting today, and made no specific mention of the recent strength of the Yen. A Chinese official stated that the growth rate in Chinese Factory output would slow to a 10% annual rate during the second half of 2010. A private survey of UK Housing Prices during July rose 0.7%, much higher than expected. There are no major US economic numbers to be released this morning.

GOLD MARKET FUNDAMENTALS:

In looking at the gold market action over the last three trading sessions, it would seem like gold was behaving like a physical commodity market facing a slowdown. Gold prices have generally sagged away from last week's highs, despite seeing renewed Euro zone bank threats and talk of increasing global uncertainty. In fact, gold prices this morning are trading softer despite a foreign official alluding to a very uncertain economic track in the US economy and even in the face of another foreign official suggesting that the Euro zone isn't out of the woods yet on financial stability. Over the last two trading sessions, the gold market at times was tracking positively with the US equity markets and that also hints at a physical commodity market track in gold. With a Wall Street Journal article apparently questioning the validity of the initial European bank stress tests earlier this year, one might have expected flight to quality mentality to be providing some support to gold prices this morning. However, a stronger Dollar and weakness in a host of physical commodity markets this morning seem to have produced some outside market pressure for gold in the early going today. Comex Gold Stocks were 10.821 million ounces, down 437. Stocks have declined 13 of the last 20 days. The Commitments of Traders Futures and Options report as of August 31st for Gold showed Non-Commercial traders were net long 260,913 contracts, an increase of 15,457 contracts. The Commercial traders were net short 308,752 contracts, an increase of 19,791 contracts. The Non-reportable traders were net long 47,839 contracts, an increase of 4,334 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 308,752 contracts. This represents an increase of 19,791 contracts in the net long position held by these traders.While Indian gold buyers seem to be interested in picking up gold on weakness and there are signs of renewed financial uncertainty in the marketplace, the gold trade doesn't seem to be ready to come back into vogue. Therefore it could take a day of lower price action and perhaps more definitive financial sector concerns to fully rekindle flight to quality buying. On the other hand, it is possible that improved macro economic sentiment off pre- election maneuvering in Washington could create a more positive buzz and that in turn could lift physical commodities, but at least in the early Tuesday trade the gold market seems content to slide lower on the charts. In short, until the December gold falls down to up trend channel support down at $1,236, we have to give the bear camp the edge.

SILVER MARKET FUNDAMENTALS:

With the silver market last week outperforming the gold market at times on the upside, it is not surprising to see silver prices under relatively more aggressive selling pressure in the early Tuesday morning trade. With the energy and equity markets also trading lower this morning and the US Dollar a touch stronger, the silver market does seem to have a completely different outside market environment than was in place for most of last week. The bear camp is pointing out the fact that last week's new highs for the move were undertaken on falling volume, and that the silver market was unable to sustain above the even number $20.00 level on the charts. The bull camp is suggesting that silver is still relatively cheaper than gold and platinum prices and that silver is capable of benefiting from flight to quality or physical commodity market fundamentals. Comex Silver Stocks were 110.714 million ounces, up 492,243. Stocks have declined 11 of the last 20 days. The Commitments of Traders Futures and Options report as of August 31st for Silver showed Non-Commercial traders were net long 44,633 contracts, an increase of 9,826 contracts. The Commercial traders were net short 60,010 contracts, an increase of 8,069 contracts. The Non-reportable traders were net long 15,377 contracts, a decrease of 1,757 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 60,010 contracts. This represents an increase of 8,069 contracts in the net long position held by these traders. The silver market was overbought last week and seemingly pretty heavily dependant on improving macro economic conditions. With a slight letdown on the global recovery track this morning and an overbought technical condition, we have to give the bear camp in silver a couple days of control over prices. Near term downside targeting in December silver is seen at $19.34 and perhaps even down at $19.21 in the event that equities come under sustained profit taking pressure directly ahead.

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) 09/07/2010: A crossover down in the daily stochastics is a bearish signal. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The close above the 9-day moving average is a positive short-term indicator for trend. The daily closing price reversal down puts the market on the defensive. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside objective is now at 1231.4. The next area of resistance is around 1256.4 and 1264.2, while 1st support hits today at 1240.0 and below there at 1231.4.

COMEX SILVER (DEC) 09/07/2010: Momentum studies are trending higher but have entered overbought levels. The market's short-term trend is positive on the close above the 9-day moving average. A positive setup occurred with the close over the 1st swing resistance. The next upside target is 2029.0. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 2011.5 and 2029.0, while 1st support hits today at 1963.5 and below there at 1933.0.