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-- Posted Monday, 15 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -16.30, SILVER -45.50
London Gold Fix $693.00 -32.75 LME COPPER STKS 114,075 ml tns +125 tns
GOLD stks 7.746 ml oz, +71,911 oz COMEX SILVER stks 122.8
ml oz, -629,659 oz OVERNIGHT ACTION: Moderately weaker price action overnight is only lightly tied to the rise in the US Dollar. GOLD: OUTSIDE MARKET DEVELOPMENTS: While the Dollar is moderately higher this morning, that development doesn't appear to be the main element behind a significantly weaker opening salvo. It is possible that a significant decline in copper prices and a sharp slide in energy prices are providing a short selling incentive to gold this morning. In other words, instead of seeing broad based outside fund buying support wave, the gold market is seeing broad based outside fund selling pressure. In fact, with the fund buying element a major component of the bull run in gold over the last six months, the aggressive selling in outside markets this morning is probably going to result in some concentrated gold selling action throughout the session today. While the Dollar is higher this morning, we doubt that the currency impact on gold will turn patently negative for gold until the Dollar Index shows a string of gains.
GOLD MARKET FUNDAMENTALS: The gold market might end up seeking support from the inflation or currency aspect later this week, as the direct investment support for prices this morning seems to be showing some signs of reversing. In fact, with the US equity market recently showing the first signs of sustained weakness off the latest new round of highs in the gasoline market, and or from the ongoing pattern of interest rate hikes, it would seem like something is beginning to drag on the economic outlook. While the gold bulls were hoping to get support this week from a series of critical inflation readings and the metals in general last week showing aggressive two sided trading action, it would seem like the market was already in search of a fresh dominating theme. In fact, it would almost seem like the Iranian situation is set to hold under a boil (for at least the near term) and therefore the metals markets might be set balance their overbought technical condition a bit. Adding into the initial bearish control this morning, is the fact that energy prices are down sharply and the copper market (a recent stalwart of the bull trend in gold) is also under very significant pressure. In fact, just as massive copper price gains fueled speculative buying interest in gold over the last two months, significant losses in copper this morning might be set to prompt fund selling interest in gold and that type of action bring about a volatility event. Certainly the gold market was overbought technically, after the recent run to 26 year highs and therefore at least a portion of the setback this morning should be considered technical in nature. In our opinion, a major source of support behind the gold market has been the uncertainty off soaring oil prices and while unleaded gasoline prices managed a new high run late last week, it is clear this morning that some players are holding out hope that a severe summer gasoline shortage will be avoided. While we doubt that a US gas crisis will be avoided, it is possible that the gold market will, for the next week, think that a gas crisis has been avoided and that along with an overdone technical status in the gold market should result in some wild back and fill price action. We would suggest that players with long June gold call positions should be poised to bank profits on those positions this morning and then wait for a correction back below $684 to buy some August gold calls. Despite the high cost of call premium, the risk control attributes of call options, might become very apparent in the coming days, as we suspect that some rather significant volatility is directly ahead. While the May 9th Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long only 129,337 contracts and the Non-reportable position to be net long only 41,633 contracts, that positioning was certainly understated versus the close on Friday. However, while the big picture up trend pattern in the gold market is not complete yet, the coming week could be a very significant crossroads for the market! In fact, unless the economic outlook improves a little and there is some evidence of rising inflationary pressures from the US numbers, the gold market could be in for a slide below $650. SILVER: OUTSIDE MARKET DEVELOPMENTS: With the silver market recently showing signs of lagging behind the rest of the metals on the upside swing and the ultra weak outside market action this morning, it would not be surprising to see the liquidation pressure on silver turned up rather significantly. In fact, we doubt that the higher Dollar is even a consideration to the silver market this morning, as the tide of liquidation pressure seems to be rather encompassing. In fact, with world equity prices lower again, energy prices lower again and copper massively under pressure, we suspect that any would-be buyers of silver are simply going to be afraid to show themselves in the face of the selling tide this morning.
SILVER MARKET FUNDAMENTALS: It would seem like the industrial demand theme is a negative to silver today and that the flight to quality theme is bearish today. In fact, it even seems like the investment demand theme is starting out on a very negative track for silver today. Prior to the washout this morning, it was possible that the metals were set up to see yet another wave of buying interest this week off rising inflation readings in the US, but with the tidal wave of selling pressure this morning, classic fundamentals are probably discounted in favor of broad based fund and technical selling interest. The most damaging outside market development today, might be the 20 cent slide in copper prices, as the copper gains of the last 6 months were largely responsible for dragging silver upward in the wake of skepticism. With European industry officials warning of a speculative bubble in the Press overnight, it is not surprising that the wave of selling this morning has gathered such significantly momentum, but the real question will be, whether or not investors and funds see the current break as a buying opportunity? With the outside pressures turned up significantly this morning and the funds apparently unwilling (at least initially) to step up and buy the initial wave down, we have to think that a slide back to 13.00 is possible basis the July contract. The May 9th Commitment of Traders with Options report showed the Silver Non-Commercial position to be net long 27,970 contracts, with the Non-reportable position net long 24,473 contracts for a combined spec long 72,000 contracts and that is certainly a position that is capable of fueling a panic style washout. While we think that a huge slide in energy prices will eventually accelerate growth in the global economy, the near term track in silver prices is probably going to remain down throughout the session today and at times the losses might be quite significant. As we suggested already, we suspect that July silver will see a trade back below $13.00 in the first two sessions of this week. However, those looking to enter into fresh long plays might have to risk positions to at least $12.00. METALS TECHNICAL OUTLOOK 5/15/2006 COMEX SILVER (JUL) 05/15/2006: Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. 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 upside objective is 1510.5. The next area of resistance is around 1461.0 and 1510.5, while 1st support hits today at 1386.1 and below there at 1360.5. COMEX GOLD (JUN) 05/15/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Stochastics turning bearish at overbought levels will tend to support lower prices if support levels are broken. The market's short-term trend is positive on the close above the 9-day moving average. The market setup is somewhat negative with the close under the 1st swing support. The next downside objective is now at 696.8. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 721.0 and 733.7, while 1st support hits today at 702.6 and below there at 696.8.
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 Monday, 15 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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