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-- Posted Thursday, 20 April 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +12.80, SILVER -2.70
London Gold Fix $644.50 +20.75 LME COPPER STKS 118,425 ml tns -625 tns
GOLD stks 7.511 ml oz, -112,000 oz COMEX SILVER stks 124.7 ml oz,
+2,900 oz OVERNIGHT ACTION: Another strong upward pulse in gold overnight despite a stronger US Dollar and sloppy silver prices. GOLD: OUTSIDE MARKET DEVELOPMENTS: Even though the US Dollar appears to be poised to open higher, the gold market doesn't seem to be undermined as a result of that action. In fact, the early US gold action showed a moderate extension of the prior day's gains, despite the fact that silver prices are trying to be moderately lower early today. Typically divergence between gold and silver hints at a lack of a definitive consensus in the metals markets but it is also possible that silver has become significantly more overbought than gold in the wild action this week. In other developments, the US equity market looks to open unchanged to slightly higher and therefore the equity market doesn't look to be a major issue for gold. Even the oil market looks to open mostly unchanged and that could leave gold to focus mostly on its internal factors.
GOLD MARKET FUNDAMENTALS: We continue to see news of expanding capital expenditures by various mining concerns but that talk should have only a limited negative impact on prices, as the turn around time from increased budgeting to and actual increases in physical supply flow, is measured in "quarters" instead of months. In fact, following an increase in capital expenditures, it might take nearly a year, perhaps even longer to begin actually selling that new supply flow. Overnight a Chinese Mining concern announced efforts to expand production and committed 10 Billion Yuan to the effort, but with the company only capable of 13 tonnes of gold production in 2006, most of that Capex spending increase is expected to be allocated to copper production efforts at that company. Apparently prices in Tokyo reached new 20 year highs overnight, while European gold managed to reach a fresh 25 year high and that certainly suggests that investment, flight to quality and inflation buyers in gold remain interested in the market, even though the rate of gain this week has become rather extreme. To the high overnight, the June gold contract has managed a rally from $600.2 at the end of last week to the overnight high of $649.1 or a rally of $48.9 per ounce. With the macro economic outlook positive, oil prices still hinting at inflation and tensions with Iran expected to remain in the headlines, the bull camp sees most of the headlines coming down in its favor. The path of least resistance remains up, with most of the outside market action favoring even more gains ahead. Certainly the slight corrective action in silver in the early going, is a little concerning but the overall flow of investment toward gold should continue as the scheduled numbers today are probably not going to alter the current view toward the economy. However, it is possible that the talk of sanctions again Iran could serve to boost flight to quality or speculative buying in gold today. Yesterday, a Fed member suggested that the sharp rise in gold and silver prices might be the result of increased demand from India and China and not necessarily from a pure inflation perspective and that is the point we were trying to make into the recent sweep of inflation readings early this week, when we suggested that global growth and not inflation is the real driving force of the current market. In other words, it is our opinion that the majority of the gains already forged in gold were the result of pure investment or physical interest and that the speculative wave starting only a couple weeks ago. We also think that inflation buying in gold has only taken place over the last 3-5 sessions and therefore the market isn't nearly as overbought as many would like to suggest. Near term critical support in the June gold comes in at $643, with additional upside targets seen up at $650 and $654. SILVER: OUTSIDE MARKET DEVELOPMENTS: With the gold market higher and silver showing early weakness this morning, it would seem like the silver market is tracking internal factors to start the session. Some might suggest that a higher Dollar is bearish toward silver, but with the gold market at times this morning showing even more significant gains, we doubt that the weakness in silver early today is being sparked by currency inputs. We might also add that copper prices are higher this morning and that global equity prices are showing enough positive action, to conclude that the outside elements are simply being discounted by silver this morning.
SILVER MARKET FUNDAMENTALS: After a rather extensive upward thrust in silver this week (silver to the high yesterday had gained a shocking $1.84 per ounce) it is not surprising to see some profit taking. While some continue to suggest that the current rally is not justified from a strict supply and demand analysis, the comments from the Fed's Yellen yesterday, that rising silver and gold prices might simply be the result of new consumers in India and China buying the metals, certainly creates the potential, that implied demand is indeed rocketing higher. In other words, the combination of soaring physical demand and rising investment demand should (once the stats are brought up to date) reveal a tighter supply and demand equation that what was expected by the trade several months ago. In conclusion, even the Fed is suggesting that a large portion of the buying, behind the recent run up, is possibly coming for reasons other than simple inflation! Some might are even suggesting that physical and investment buying has a longer shelf life than flight to quality or inflation buying and that is another element that the bulls could be embracing. While the silver market did manage a fresh new high for the move this morning, it has corrected back below the prior days close in a move that has some weak handed longs concerned. However, we don't expect to see outside force contribute to the weaker tilt, with stock prices positive and copper prices trying to regain footing today. However, the silver market might pay of bit if attention to the leading indicator reading, as a sloppy number from that report could promote an additional but temporary wave of profit taking. While we think that the trend clearly remains up, seeing gains of $1.84 per ounce since the close last week, is certainly cause for some back and fill action. Traders should consider fresh long plays on the weakness this morning but as can be seen in the new trade recommendation in silver, fresh longs should be protected with a short out of the money call and a long put combination. METALS TECHNICAL OUTLOOK 4/20/2006 COMEX SILVER (MAY) 04/20/2006: The market made a new contract high on the rally. Momentum studies are trending higher but have entered overbought levels. A positive signal for trend short-term was given on a close over the 9-bar moving average. The gap upmove on the day session chart is a bullish indicator for trend. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside target is at 1499.5. The market is giving an extremely overbought indicator with the RSI over 90. The next area of resistance is around 1481.9 and 1499.5, while 1st support hits today at 1422.5 and below there at 1380.5. COMEX GOLD (JUN) 04/20/2006: A new contract high was made on the rally. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. A positive signal for trend short-term was given on a close over the 9-bar moving average. The gap upmove on the day session chart is a bullish indicator for trend. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at 645.0. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 641.8 and 645.0, while 1st support hits today at 630.1 and below there at 621.5.
To those of you who have emailed or commented on the daily commentary regarding price manipulation: our daily comments are strictly to provide our customers and subscribers with news, which may influence the markets marginally on a day-to-day basis. This is not the forum to address price manipulation.
There are multitudes of ways in which one can participate in a bullish or bearish perspective in the metals complex. Mining shares as well as purchasing bullion are just a few. Another investment of choice is through futures and/ or options on futures contracts. If you have traded, then you will be able to appreciate the brokerage service that Nell Sloane and Group can offer. If you have not, and wish to learn more about it, please feel free to contact her staff so that they can forward you some educational literature for your review. Please contact Nell Sloane or a member of her team at 800 238 2610.
-- Posted Thursday, 20 April 2006 | Digg This Article
***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of Hartfield Management, Inc. is strictly prohibited.
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