Commodities » Precious Metals

Gold and silver daily commentary (September 10, 2010)

By Nell Sloane

While equity markets in Asia were generally stronger, stock markets in Europe are generally weaker this morning. U.S. stock indices have moved moderately higher during the early Friday trade. The Dollar is weaker against most of the major currencies during overnight trading, although posting a sizable gain against the Swiss. The head of the European Central Bank said that it would take time in order to wean Euro zone banks off of emergency lending measures. The Chinese Foreign Trade surplus during August was $20 billion, lower than forecasts but mainly due to a much higher than expected imports number. Japanese GDP during the second quarter was up 0.4%, in line with expectations. French Industrial Production during July was up 0.9%, higher than forecasts. The UK Producer Price Index during August was up 4.7% year-on-year, slightly lower than expectations. The only major US economic number to be released this morning will be July Wholesale Trade at 9:00 AM.

GOLD MARKET FUNDAMENTALS:

Apparently the international gold trade is trying to spin the 10 metric ton IMF gold sale to the Bangladesh Central Bank as a positive. Given the recent slide off the highs in gold this week, in the face of a slight improvement in overall global macro economic expectations, it would seem like gold was at least partially undermined by its safe haven contingent this week. Some markets overnight have seen the increase in Chinese imports as a sign of improved economic activity in the world's second largest economy, and that in turn might be a factor that contributes further to economic optimism. However, the flight to quality crowd is pointing to another round of capital raising efforts in the Euro zone as a lingering uncertainty, and that issue in turn could take on added importance in the wake of the coming weekend release of Basel III requirements. The gold bears might suggest that the need to raise more European bank capital isn't a negative, unless those banks experience difficulty in securing that capital. At times, gold has been able to draft favorably with the equity markets, but with gold prices faced with the prospect of a lower weekly trade today, it would seem like safe haven liquidation is initially edging out fresh buying off ideas of a forward progression in the global economy. Comex Gold Stocks were 10.733 million ounces, down 2,391 ounces. Stocks have declined 15 of the last 20 days. Comex Gold stocks are at the lowest in the past 10 readings. The gold market looks to be sloppy and vulnerable going into the action today, but uptrend channel support is seen just below the market at $1,244.70 basis the December gold contract. We think that some gold traders will look to cover short side plays ahead of the close today, as uncertainty over the Basel III weekend release could provide the gold market with a lift into the Monday morning trade. Pushed into the market this morning, we would favor the bear track, but on a retest of the prior session's lows, or a return to up trend channel support lines, we would suggest that shorts bank profits and longs  consider re-entering the long side.
 

SILVER MARKET FUNDAMENTALS:

The December silver contract overnight fell to as much as 48 cents an ounce below this week's high, but has now rejected a moderate portion of that initial weakness. Surprisingly, the silver market hasn't specifically benefited from what would seem to be a partial improvement in global macro economic psychology this week. In fact, energy prices and other key physical commodity markets are showing some moderate strength this morning, and yet the silver market doesn't seem to be fully embracing the hope of improved physical demand. It is possible that silver could take some direction from a US crop report this morning, as a bullish crop report that serves to lift grain prices sharply could combine with early strength in energy prices and may provide some spillover buying interest to silver. However, the bear camp is suggesting that the decline from this week's high is the result of a downshift in flight to quality mentality, and therefore it is possible that the potentially positive physical commodity market focus could be countervailed by other influences. Comex Silver Stocks were 110.821 million ounces, down 426,919 ounces. Silver stocks have declined 11 of the last 20 days.  Uptrend channel support in the December silver market today is seen at $19.70, with another critical pivot point seen down at $19.68. Obviously, silver is somewhat overbought technically following the three week rally of $2.40 an ounce and with the silver market seemingly waffling between flight to quality and physical commodity demand views, the silver market might be facing a key decision today. In a roundabout way, the crop report could determine the direction of silver prices today, as it could take an added macro economic push to rekindle silver strength off the recovery/physical demand angle.

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) 09/10/2010: The daily stochastics have crossed over down which is a bearish indication. 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 negative as the close remains below the 9-day moving average. The close below the 2nd swing support number puts the market on the defensive. The next downside target is now at 1231.8. The next area of resistance is around 1254.0 and 1265.7, while 1st support hits today at 1237.0 and below there at 1231.8.

COMEX SILVER (DEC) 09/10/2010: The daily stochastics have crossed over down which is a bearish indication. Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The close above the 9-day moving average is a positive short-term indicator for trend. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is now at 1951.3. The next area of resistance is around 1995.0 and 2019.2, while 1st support hits today at 1961.0 and below there at 1951.3.