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-- Posted Thursday, 4 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGE to 4:00 AM:London Gold Fix $664.65 LME COPPER STKS 115,975 ml tns -175 tns GOLD stks 7.33 ml oz, Unchanged COMEX SILVER stks 123.6 ml oz, Unchanged OVERNIGHT ACTION: Currency related selling overnight pressured the entire metals complex. GOLD OUTSIDE MARKET DEVELOPMENTS: It is clear from the overnight action that a minor bounce in the Dollar has undermined gold and it would also seem like outside metals market action this morning is weak and that could be an indirect function of the energy price reversal on Wednesday. With the US oil inventory data yesterday temporarily toning down the speculative buzz toward the precious metals and the US stock market also falling back moderately yesterday, the flight to quality and investment tilt for the metals was ratcheted back a bit. Some traders have suggested that recent US numbers have been too strong or just strong enough to rekindle concerns that the US Fed might not be able to pause. Typically expectations of rising interest rates tends to be a negative for gold, but expectations for higher US interest rates and steady Euro zone rates, is in the short term, very also supportive to the US Dollar. Therefore it is not surprising to see the gold under some light pressure this morning in the wake of the news of the last 24 hours. In the short term, it is even possible that more favorable US economic numbers are going to be seen as negative to near term gold prices! GOLD MARKET FUNDAMENTALS: The Newmont Mining President who is also the Chairman of the World Gold Council predicted that gold prices could rise to $850 but that bullish news is countervailed by news of a significant rise in Barrick gold production in the 1st quarter. In fact, the Barrick production increase to 1.96 million ounces versus 1.14 million ounces over the 2005 1st Quarter, is somewhat significant considering that other companies posted declines in output. Part of the increased Barrick output was the result of new mines and part was the result of merger production and that reduces the absolute amount of new gold supply that is expected to flow to the market. Furthermore it was also noted overnight that 1st quarter de-hedging showed a significant expansion and that the expansion appears to have been the result of less hedging by Barrick and that certainly seems to justify a portion of the recent price appreciation. In fact, with the significant de-hedging news, one might suggest that a bigger portion of the gold gains were the result of non-speculative interests instead of coming from "mostly" speculative sources. In other words, it seems that less hedging, and speculation lifted gold prices in the 1st quarter, which could in some traders minds, suggest that the gold market isn't as speculatively overbought as some the Press have suggested. However, with the reversal in stock prices and the slide in oil prices, it is possible that the near perfect investment setup for gold has been temporarily called into question. It also seems like the Iranian situation is turning up less anxiety, as the UN Security Council's resolution on Iran was lacking. While it would not seem like longer term investing patterns are poised to change off the developments of the last 24 hours, it is possible that the current, partially bearish macro economic condition, favors the bear camp leading into the Friday morning US monthly payroll report. With the huge spike up run in the June contract above the $675 level rejected and several outside market factors undermining gold this morning, it is possible that prices could correct further. In fact, recent US economic numbers have apparently been too strong, as that tilt in sentiment has bolstered views of higher US interest rates and in turn supported the Dollar. Also undermining gold is the fact that energy prices weakened and stock prices fell back. It would not seem like a major shift in fundamentals has taken place and given the somewhat muted Dollar response to stellar US data, the current adverse climate doesn't appear to be capable of entrenching. Therefore, traders should brace for some choppy action and a possible setback to $660.2 support or even lower support of $653. SILVER OUTSIDE MARKET DEVELOPMENTS: Certainly the persistent weakness in the copper market and the reversal in the equity market over the last 24 hours have provided the bear camp with a favorable environment. With a higher US Dollar dampening the gold market and the metals in general showing early coordinated weakness, the bias in the early action today is somewhat negative. With the US equity market fearful of rising interest rates, it would seem like the economic optimism from the favorable US scheduled economic reports has been masked and that is another reason why the industrial demand component for silver has partially shifted away from the patently bullish view that was seen early in the week. SILVER MARKET FUNDAMENTALS: It would seem like predictions of stellar implied off take in silver, (from investment vehicles) is temporarily losing its capacity to drive silver prices sharply higher. While some analysts think that off take from cumulative implied silver demand might reach into a 60 to 100 million ounce zone, it is possible that the trade has at least temporarily factored that news already. Therefore, even with the very favorable US macro economic outlook from the scheduled numbers, it seems that spec and physical buying interest is wavering. However, traders continue to watch political developments in Bolivia, which recently nationalized oil sector interests, as a nationalization of Bolivian silver interests could increase uncertainty toward silver supply. However, Bolivian silver production is roughly only 1/5th the size of the world's largest producer, Mexico! In the coming session it would not appear as if uncertainly toward supply will be able to totally countervail the slight softening from the investment demand front. In fact, with European mining shares softer this morning, it seems that yesterday's negative tilt has been sustained overnight. With the market exhibiting corrective action and at the same time seeing partially negative influences from a higher Dollar and weaker energy prices, we can't rule out a return to the prior session's lows. It was noted that Silver ETF volume continued to rise yesterday, but that the share price of the Silver ETF declined and that has dampened speculative buying interest. In fact, with weakness in European mining shares and a coordinated weakness in all the metal markets this morning, we can't rule out a temporary back and fill to $13.00 basis July silver. In fact, given the fear of a post ETF launch letdown, it is possible that silver could temporarily spike down to $12.50. Those who took our advice to buy July silver, buy a put and sell a call against that position should hold that protection through the upcoming US payroll report or until US equity prices and energy prices return to their highs!
METALS TECHNICAL OUTLOOK 5/4/2006 COMEX SILVER (JUL) 05/04/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The close above the 9-day moving average is a positive short-term indicator for trend. The outside day down and close below the previous day's low is a negative signal. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The near-term upside target is at 1502.3. The next area of resistance is around 1440.5 and 1502.3, while 1st support hits today at 1318.5 and below there at 1258.3. COMEX GOLD (JUN) 05/04/2006: The rally brought the market to a new contract high. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The close above the 9-day moving average is a positive short-term indicator for trend. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next upside objective is 689.0. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 678.4 and 689.0, while 1st support hits today at 658.6 and below there at 649.4.
-- Posted Thursday, 4 May 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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