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-- Posted Wednesday, 24 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -3.30, SILVER -13.50
London Gold Fix $667.50 +5.80 LME COPPER STKS 106,225 ml tns
-925 tons
GOLD stks 7.796 ml oz, -505 oz COMEX SILVER stks 116.7
ml oz, -3,670,728 oz OVERNIGHT ACTION: Chinese gold higher with a reversal seen in European and US action off a firmer Dollar. GOLD: OUTSIDE MARKET DEVELOPMENTS: After another overnight pulse up, the US Dollar seems to have undermined the gold market. Even though a majority of the Dollar gains were not held, the direction of the Dollar seems to have defeated some of the bullish attitude in place from the prior session. With copper prices showing moderate weakness this morning and oil prices down, the gold market comes into the session today with significantly fewer tail winds than were seen into the opening yesterday. We must also note a slightly less supportive track in world equity markets in the overnight action.
GOLD MARKET FUNDAMENTALS: With soft macro economic readings from Germany overnight and early expectations for the US durable goods report calling for an unchanged reading, there probably won't be as much support from the physical demand sector today. It also seems like the Press is discounting the recovery bounce in gold yesterday, despite the very supportive "recently released" World Gold Council 1st quarter update, which documented rising investment demand for gold. Apparently the trade is partially disappointed with the WGC 2006 demand outlook, as the WGC put total gold demand down 16% in the 1st quarter. Apparently a very sharp slide in jewelry demand was mirrored in several other demand measures, but the market was saved from a patently bearish interpretation of the WGC data because 109 tons of gold flowed into new investment (ETF Funds) vehicles. It is not surprising that jewelry demand and retail investment demand declined in the 1st Quarter given the extremely sharp rise in flat prices but the question now becomes whether or not investment demand can continue to carry the market. In a slightly positive note, gold supply declined by 15% in the 1st quarter and that was caused by aggressive de-hedging. In fact, de-hedging was so significant, that it managed to outset a 5% increase in physical mine output. De-hedging was so significant that it in effect reduced the net supply flow. In short, classic fundamentals are only supportive, if the bullish macro environment for gold investment remains in place. In other words, ultra high prices are dampening some demand and are also stimulating physical supply flow but so far the investment interest is out distancing the competition. With the Dollar higher and the outside markets less supportive of the bull track today, we have to give the initial edge to the bear camp. In fact, given the early flow of economic numbers from Germany and the US numbers potentially slack, it would seem like the macro economic condition will continue to favor the bear camp this morning. In fact, with copper prices off sharply this morning and energy prices also weak, a little of that commodity selling interest is likely to influence prices today. In fact, it is possible that weekly oil inventory data prompts pressure in the energy complex, which in turn serves to deflate gold a bit. As we suggested yesterday, the gold market needs the hope for strong growth, a weak Dollar and rising oil prices just to continue to facilitate the bull case. However, early today the gold market is seeing anything but favorable conditions. However, the sudden rise in prices yesterday gives the bear camp enough of a warning, that we suspect that the market will avoid heavy selling pressure. Near term downside targeting is $657.5 and then again at $651. The trend is still mostly intact, but it could take a rise above $675 after the 9:30 central time oil inventory report to signal that the profit taking posture has been reversed. SILVER: OUTSIDE MARKET DEVELOPMENTS: A higher Dollar, lower gold, lower oil and a lackluster global equity market overnight seems to have prompted some profit taking from the big gains in silver on Tuesday. With overnight European economic readings somewhat soft and the market still expecting the ECB to hike interest rates, the macro economic tilt for silver is less than supportive today. The weakness in the copper market early today really serves to temper the bullish attitude that was present toward all the metals on Tuesday, especially with some copper players now suggesting that the recovery Tuesday was a simple technical reaction and not a sign that physical demand was once again powering up prices.
SILVER MARKET FUNDAMENTALS: The silver market might have been undermined overnight by the fact that a major Chinese bank IPO has attracted such significant interest, as that would seem to lower the currency uncertainty associated with the Yuan. We also suspect that new fears of human to human transmission of bird flu overnight have undermined silver and copper prices. On the other hand, traders should note that exchange supplies of silver have managed some rather significant declines this week, with over 3.6 million ounces moving out overnight. Some traders have suggested that the decline in stocks is the result of the recent break in prices, which in turn has prompted some players to take delivery! If the pattern of lower stocks continues, that could rekindle the respect for investment demand and give a distinct edge to the bull camp. However, in looking at the action in copper overnight and the lack of a definitive tilt in the equity markets overnight, it seems that the bull camp will initially be fighting an uphill battle today. While the July silver is impressive in its ability to hold up around the recent highs, the macro economic condition might weigh on silver prices today. In fact, if the market is going to be vulnerable today, it should be vulnerable in the early action, in the wake of the US equity market opening, the durable goods report and then a later on in the wake of the weekly oil inventory report. We suspect that July silver could fall back to close-in support of $12.78 and could fall to even lower support of $12.50 in the event that the oil inventories result in a sharp slide in oil prices. Surprisingly the best track for the bull camp in silver today might be to see a sharply higher oil price reaction to the oil inventory today. We suspect that July silver will attempt to consolidate and hold support around $13.00, but that zone could end up being the bull/bear line today! METALS TECHNICAL OUTLOOK 5/24/2006 COMEX SILVER (JUL) 05/24/2006: The cross over and close above the 40-day moving average is an indication the longer-term trend has turned positive. Daily stochastics are trending lower but have declined into oversold territory. A negative signal for trend short-term was given on a close under the 9-bar moving average. The gap up on the day session chart gave a bullish indicator and more follow through could be seen this session. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next downside objective is 1255.2. The next area of resistance is around 1342.3 and 1356.1, while 1st support hits today at 1291.8 and below there at 1255.2. COMEX GOLD (JUN) 05/24/2006: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The gap up on the day session chart gave a bullish indicator and more follow through could be seen this session. There could be more upside follow through since the market closed above the 2nd swing resistance. The next downside objective is now at 654.5. The next area of resistance is around 681.4 and 685.4, while 1st support hits today at 666.0 and below there at 654.5.
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.
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-- Posted Wednesday, 24 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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