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-- Posted Thursday, 18 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -4.30, SILVER -14.50
London Gold Fix $688.00 -25.00 LME COPPER STKS 108,150 ml tns
+225 tns
GOLD stks 7.796 ml oz, +50,465 oz COMEX SILVER stks 121.0
ml oz, -1,777,888 oz OVERNIGHT ACTION: More weakness apparent overnight but the Dollar isn't the culprit. GOLD: OUTSIDE MARKET DEVELOPMENTS: Apparently some revaluation of Middle East currencies (due to the Dollars weakness) wasn't enough to lift gold in the overnight trade and apparently the rather aggressive response from Iran to the EU incentive program wasn't enough to sustain the gold market yesterday in the wake of a shift in the view toward US interest rates. In addition to concerns that higher US interest rates will slow growth, the metals were also undermined by broad based commodity fund selling wave. While some equity markets are showing a minor recovery this morning, the outlook for the global economy seems to hang over the gold market.
GOLD MARKET FUNDAMENTALS: With the French Finance Minister hinting at intervention against the Euro, the BOJ also thought to be ready to stand against further gains in the Yen, it is possible that the downward motion in the Dollar continues to be restricted. On the other hand, the desire to diversify away from the Dollar probably won't be discouraged because of a one time 25 basis point US rate hike. However, oil prices have remained soft, with crude oil currently sitting $7.66 below the early May high, the financial uncertainty off surging oil prices is also dampened. Just to round out the bearish setup, is a heightened fear of more commodity fund liquidation pressure ahead. A noted Wall Street analyst has predicted a 30% liquidation in commodity prices in the coming 3-6 months and therefore traders are watching the action in gold closely for any sign of renewed selling interest. While the market doesn't appear to be in a mode to embrace bullish supply developments, it should be noted that Harmony Mines (a key South African miner) was hit by a 1 day strike at half of its locations! Many traders think that the direction of the equity market will be the ultimate arbiter of near term direction in the gold market. As we have said a number of times over the last 6 months, growth and physical demand are the primary pillars of the bull market in gold and with the equity market registering slowing concerns, a certain amount of selling is to be anticipated. However, while a pattern of lower oil prices might continue to undermine gold in the short term, seeing energy prices fall without actually seeing supply and demand issues repaired, probably means that the economy regains pace and that oil prices will also recover. On the other hand, revaluation in some Middle East currencies (because of the Dollar slide) suggests that the downtrend in the Dollar will eventually continue and that should also underpin gold. Near term critical support in June gold is seen at $675 and we would suggest that players look to the August $765/$840 bull call spread for $1,080 as a way to re-enter the long side. However, those looking to re-enter long futures plays might be advised to wait for some further liquidation action. SILVER: OUTSIDE MARKET DEVELOPMENTS: The combination of aggressive selling in the equity market and weakness in copper is a major potential undermine for silver. However, both copper and equities have shown some renewed strength this morning but the question will be whether or not that strength can be maintained. While weaker oil is a short term negative to silver, persistently weaker oil prices might allow the economy to re-gather momentum and that could support silver in the future. Traders have suggested that July copper needs to hold above 356.50 today to keep the outside metals liquidation threat contained.
SILVER MARKET FUNDAMENTALS: With lackluster guidance from the gold market again today, the silver market looks to remain vulnerable to more selling. However, a large decline in daily silver stocks on the recent break in silver prices, might hint at renewed interest in taking delivery and that type of news might serve to countervail part of the softening of investment demand pattern. As suggested in the gold market, the silver market will be largely driven by the direction of the US equity market and the outlook for the US economy. With the Chinese talking about slowing their real estate market, in relative proximity to the big global equity market slide, the silver market will in the near term continue to battle a liquidation mentality. Apparently the July silver has found some support around the $13.00 level but with probes below that level seen in each of the last two sessions, one can't rule out moderate downside action. This market needs something definitively positive to throw off the liquidative tilt. Seeing the stock market recover today would go a long way toward building some solid chart support. Furthermore, seeing another sharp decline in COMEX silver stocks could provide the bull camp with a fresh bull theme, especially after the stocks showed a 1.7 million ounce decline overnight. The silver IShares net asset value yesterday reached $967 million, with 69.9 million ounces of silver in the trust and trading volume on Wednesday reaching 782,000 shares. Therefore there are signs of ongoing investment demand but unless the macro economic outlook gets back on solid footing, the bear camp has an edge in the daily action. On a decline to $12.70 traders should consider re-entering late summer bull call spreads in silver. METALS TECHNICAL OUTLOOK 5/18/2006 COMEX SILVER (JUL) 05/18/2006: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's short-term trend is negative as the close remains below the 9-day moving average. The market could take on a defensive posture with the daily closing price reversal down. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside objective is 1234.1. The next area of resistance is around 1370.0 and 1418.0, while 1st support hits today at 1278.1 and below there at 1234.1. COMEX GOLD (JUN) 05/18/2006: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close below the 9-day moving average is a negative short-term indicator for trend. The daily closing price reversal down puts the market on the defensive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside objective is 669.4. The next area of resistance is around 704.9 and 721.8, while 1st support hits today at 678.7 and below there at 669.4.
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, 18 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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