Commodities » Precious Metals

Gold and silver daily commentary (September 08, 2010)

By Nell Sloane

While equity markets in Asia and Europe were generally weaker this morning, U.S. stock indices have moved slightly higher during the early Wednesday trade. The Dollar is slightly weaker against most of the major currencies during overnight trading, with a sizable loss against the Pound. The Japanese Finance Minister stated that the government would take decisive steps, including unilateral intervention, when necessary to weaken the current strength of the Yen. A European Central Bank council member said that the new "Basel 3" set of bank capital and liquidity rules may be approved by this weekend. The French President said that he will not back down with plan to raise the retirement age in France, an issue that caused large protests yesterday. Japanese Machinery Orders during July during were up 8.8%, much higher than expected. The German Foreign Trade surplus for July was 12.7 billion Euros, higher than expectations. UK Industrial Production during July was up 0.2%, higher than forecasts. There are no major US economic numbers to be released this morning, but there will be several private surveys that measure US retail store sales during the day. In addition, the Federal Reserve will release the latest Beige book of economic conditions at 1:00 PM.

GOLD MARKET FUNDAMENTALS:

The gold market showed some positive overnight action despite news of an increase in Chinese gold production for the first 7 months of 2010. While the Chinese showed a 10% increase in gold production in the January through July timeframe, the market didn't seem to be undermined in the face of ongoing safe haven concerns from the Euro zone overnight. In fact, Indian gold prices were firm overnight, as traders there continued to bargain hunt. In fact, the gold market seemed to make the recommendation list of a couple entities again overnight and that combined with ongoing economic and political uncertainty seems to be making the bulls happy in the early Wednesday morning trade action. Some gold players might see the President's opposition to extending the Bush tax cuts as a negative for gold prices (as that might reduce inflation prospects), but the gold market seems to be taking a lot of direction from weakness in equities and the US Dollar. Comex Gold Stocks were 10.768 million ounces down 51,941 ounces. Stocks have declined 14 of the last 20 days. Comex Gold stocks are at the lowest in the past 10 readings. The European bank scare is apparently "back in play" again, and for the time being that issue might be difficult to push back onto the back burner. With several analysts raising their targeting for gold and the flight to quality play back in vogue again, we suspect that gold will at least attempt to revisit the July highs up around the $1,270 level basis the December gold contract. Uptrend channel support in December gold today is seen at $1,240 but a closer in support level is also seen at $1,256.00.

SILVER MARKET FUNDAMENTALS:

The silver market sits within relative proximity to its recent highs and above the two prior closes in the early Wednesday morning trade action. Apparently silver continues to discount its physical commodity market standing, and instead is attempting to draft positively in the wake of recent renewed strength in the gold market. With the recent multi year upside breakout on the silver charts, the silver market is probably seeing some technically related buying interest, while others are suggesting that silver simply remains historically cheap relative to gold and platinum prices. With nearby silver prices making a bid above the even number $20.00 level yesterday, that level could be seen as a critical price level throughout the trading session today. Comex Silver Stocks were unchanged at 110.714 million ounces. Silver stocks have declined in 11 of the last 20 trading sessions. The silver market looks to be positively positioning in the early trade today, as macro economic uncertainty seems to be funneling money toward flight to quality instruments like silver. Some are suggesting that silver is destined to play catch up to gold and platinum prices, which have sat in or near record high ground for a long period of time. Close-in critical support for December silver is seen at $19.94 today, with many traders expecting silver to range up and carve out an even higher trading range ahead. However, silver will need to avoid a shift into a patently deflationary environment and or a full blown double dip recession mentality to continue to carve out persistent gains.

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) 09/08/2010: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's short-term trend is positive on the close above the 9-day moving average. The close over the pivot swing is a somewhat positive setup. The next upside target is 1270.9. The 9- day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 1265.0 and 1270.9, while 1st support hits today at 1249.8 and below there at 1240.5.

COMEX SILVER (DEC) 09/08/2010: Rising stochastics at overbought levels warrant some caution for bulls. 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. It is a slightly negative indicator that the close was under the swing pivot. The near-term upside target is at 2028.2. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 2006.0 and 2028.2, while 1st support hits today at 1960.0 and below there at 1936.3.