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-- Posted Wednesday, 26 April 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +0.30, SILVER +10.00
London Gold Fix $630.75 +3.00 LME COPPER STKS 117,950 ml tns +500 tns
GOLD stks 7.696 ml oz, Unchanged COMEX SILVER stks 124.8
ml oz, +1,977 OVERNIGHT ACTION: Higher Chinese spot gold prices despite negative currency effects. GOLD: OUTSIDE MARKET DEVELOPMENTS: While the Dollar is higher and some of the outside inflation influence on gold was extracted with the oil price slide yesterday, the market seems to be maintaining part of the bullish tilt seen on Tuesday. On the other hand, the macro economic outlook seems to have improved, with a growing list of stronger than expected readings from several countries this week. So far, the promise of rising interest rates doesn't seem to be dragging on precious metals prices. However, the US economic report slate today contains fairly important data from durable goods and there is a critical US weekly oil inventory report due and that could result in a rather significant volatility event in the oil market.
GOLD MARKET FUNDAMENTALS: Begrudgingly major brokerages are moving to raise their gold price forecasts, but in many instances the revised price projections have remained below current price levels. For instance on Tuesday, a major brokerage firm upped its 2006-2007 gold price forecast to an average price of $625 from a prior prediction of $580. In other words, a large portion of classic Wall Street Research still hasn't bought into the idea of a sustained bull trend in gold in the months ahead. Overnight BHP Billiton (the largest miner in the world) suggested that certain factors were serving to limit the effort to expand metals supply, with the most important element being a shortage of workers. We might also note that BHP Billiton reported a 5% decline in 3rd quarter gold production as compared to the 2nd quarter. Also of note is the fact that Newcrest 3rd quarter gold production was down to 367,790 ounces from a prior tally of 430,009 ounces. Just to round out the lower production pattern, Highland mines overnight reported 2005 gold production to have decline to 160,216 ounces as compared to 199,896 ounces in 2004. In a minor offsetto the pattern of production declines in gold, another miner "Avocet" showed its most recent fiscal year production (ending March 31st 2006) rising to 208,526 ounces from a prior tally of 172,938 ounces. In conclusion, it would not seem like global production has responded yet to the sharp rise in prices. In the near term, it would seem like the outlook for the global economy is improving with the US, Euro zone and Japanese numbers this week and that should mostly countervail any partially negative near term influence off weaker oil prices. As suggested already, the macro economic outlook is conducive to higher gold prices, investors remain upbeat toward the market despite the recent volatility and options expiration. It is possible that oil price strength will be rekindled by the inventory reports today and for those in the gold market, it might pay to watch the 9:30 cst oil numbers closely this morning. We might reiterate that profitability and production at many gold mines has struggled and with a large cross section of gold miners posting slightly lower 3rd quarter gold production it would seem like the fundamentals remain supportive to the bull case. In conclusion, physical supply is mostly remaining steady, investor demand remains strong, the economy is apparently positive and inflation and flight to quality issues are still periodically big supporters of the bull case. However, the June gold market looks to partially locked in a range bound by $622.1 to $637.4 range and a move outside of that range this morning might result in a quick extension. Traders should continue to hold long calls, long futures with put coverage or some other form of long position that defines risk exposure. Fresh longs might buy futures and buy 2 just out of the money puts as a correction to $610 can't be ruled out. SILVER: OUTSIDE MARKET DEVELOPMENTS: While the copper market isn't showing the massive type of gains that were present on Tuesday, the base metals markets are still giving off a positive vibration for silver. We also think that the macro economic outlook remains positive for silver as several central banks see growth and inflation prospects strong enough to warrant threats of more rate hikes ahead. While the silver market might initially weaken in the face of falling oil prices, falling oil prices might be in the long term interest of the bull camp in silver, as lower oil prices could allow global growth to sustain or accelerate.
SILVER MARKET FUNDAMENTALS: Surprisingly the silver market managed to rise on Tuesday, despite forecasts of a 2006 silver stocks surplus from a private source. While the private forecast predicted that silver would see a move from a series of annual deficits, to an annual surplus, we suspect that the recent forecast has failed to fully factor the type of soaring investment demand that has unfolded over the last two months. Perhaps more importantly, the private silver forecast highlighted the fact that long term investors in silver have stopped a 16 year pattern of selling and the forecast also pointed out that new investors are steadily increasing their holdings in silver. In other words, the net impact from the investor or buy side of the equation should serve to eat into the total supply of silver, which is expected to rise to 814 million ounces in 2006 from 790 million ounces in 2005. It is also important to note that industrial use of silver rose a mere 0.7% last year and that could easily be improved upon this year given the economic growth being seen in India, China and other regions. In short, total demand is expected to rise and with soaring and consistent investment demand, it is likely that the surplus forecast, will end up overstating the end results, especially since many mining endeavors have seen persistent labor and materials restrictions in early 2006. Apparently Barclays has updated its filing with regulators for the silver ETF and has indicated that the fund has already deposited 1.5 million ounces of silver to secure the fund. We suspect that the trade has much higher hopes for the amount of holdings in the Barclays ETF but until the fund is active, it is premature to draw any conclusions from the situation. With the BOJ hinting at rate hikes due to improving growth, the US producing hotter than expected numbers and the Euro zone seeing enough growth to predict more hikes, we think that macro conditions remain positive for silver. However, even though the market is beyond the options expiration and the gains on Tuesday put the would-be sellers off balance, the potential for significant volatility remains in place. Those that are long should have options protection to weather ongoing choppiness, as the long term prospect would seem to target even higher pricing ahead. METALS TECHNICAL OUTLOOK 4/26/2006 COMEX SILVER (JUL) 04/26/2006: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The cross over and close above the 18-day moving average is an indication the intermediate-term trend has turned positive. A positive setup occurred with the close over the 1st swing resistance. The next downside target is now at 1203.0. The next area of resistance is around 1295.8 and 1312.9, while 1st support hits today at 1240.9 and below there at 1203.0. COMEX GOLD (JUN) 04/26/2006: 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. A positive setup occurred with the close over the 1st swing resistance. The next downside objective is now at 623.9. The next area of resistance is around 639.1 and 643.4, while 1st support hits today at 629.3 and below there at 623.9.
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 Wednesday, 26 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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