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-- Posted Thursday, 25 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +6.50, SILVER +6.50
London Gold Fix $643.75 -23.75 LME COPPER STKS 105,750 ml tns
-475 tons
GOLD stks 7.796 ml oz, Unchanged COMEX SILVER stks 113.6
ml oz, -3,053,957 oz OVERNIGHT ACTION: Some bargain hunting buying overnight but outside market gains in metals were minimal. GOLD: OUTSIDE MARKET DEVELOPMENTS: The Dollar is slightly higher, the US equity market is showing initial weakness, and the rest of the metals markets are only minimally higher. With the oil market mostly unchanged the outside market influence for gold is partially negative, but not nearly as negative as was present into the opening on Wednesday. With the bird flu story surfacing yesterday and the Press floating rumors about Iran asking for renewed negotiations, the geopolitical condition is also negative. About the only positive outside market news are reports that China might have bought some platinum overnight.
GOLD MARKET FUNDAMENTALS: While there continues to be significant geopolitical uncertainty and ongoing inflation fears, the market is seeing those fears downplayed. In fact, with oil prices slumping, the Dollar recovering, and renewed concerns of human to human bird flu transmission, the bull case is being challenged on a number of fronts. With some signs of economic slowing in recent scheduled numbers and deflating oil prices, the inflation theme is dampened. With the Dollar's rise discounting the idea of a monetary debacle in the Dollar, part of the financial uncertainty is discounted. Lastly, the threat of human to human bird flu transmission seems to carry with it a fear that deflation or recession might be seen instead of growth and inflation. In looking back over the last 8 months of action in gold, only the last month seems to have been driven by inflationary expectations as the rally off the November 2005 low seems to have been primarily the result of impressive growth and rising price combination. Therefore, until the equity market shows consistent gains, the Dollar weakens or inflation is dominant again, the bear camp might have the most control over prices. Certainly the bird flu situation could be a positive for gold (in the event that uncertainty rises off the fear of a world wide pandemic) and certainly oil prices might regain upward momentum (off a fresh US refinery issue), but without a positive global macro economic outlook, the trade is beginning to fear that the buyers won't come back with consistency and in force. The gold market remains under threat of liquidation and the action in outside markets might exhibit significant influence on gold prices today. In fact, we would look to the equity market as the lynch pin today. The failure to hold above 1255.30 in the June S&P or seeing the US Dollar climb above 85.19 might be all it takes to rekindle the selling pressure in gold. We are not ready to give up on the bull trend, but this market needs a much improved macro economic outlook even before it sees renewed strength in the oil market. Therefore, the US GDP reading this morning takes on a significant added importance, just as the upward revision in the Chinese growth rate early in the week took on an added importance. Traders should become very defensive in the event that the June gold fails to hold above $636.5 as that could mean that the market is poised to slide to $625 and perhaps even $600. Given that June gold is currently below the price level where the open interest topped out, we suspect that a large portion of the weak handed longs are already on the sidelines and that could give the market a decent chance of respecting the recent consolidation low of $636, but the edge in the "near term" goes to the bear camp. SILVER: OUTSIDE MARKET DEVELOPMENTS: Outside market factors for silver are partially negative today, as the world equity markets reaction to US gains on Wednesday was muted, the Dollar is marginally higher, oil prices are soft and finally gold and copper are only minimally higher overnight. Therefore, one can't suggest that outside market conditions are patently bearish but there really isn't anything to specifically embolden the bull camp in the wake of mixed US economic information.
SILVER MARKET FUNDAMENTALS: With another 3 million ounce decline in silver stocks overnight, the silver market is certainly seeing a potentially bullish fundamental development. It is also possible that the recent World Silver Outlook, which highlighted surging investment demand in silver, will continue to be a story that partially counters the periodic threat of broad based commodity fund selling. While volume of trading in equity based silver derivatives continues to be active, the net amount of silver held by the silver trust has slowed its assent around the 73 million ounce level and therefore indications from that area could become critical in helping the market decide on its upcoming direction. Perhaps even more important than the ETF action, is the fact that exchange stocks of silver seem to be in play, with the pace of declines this week quite impressive. Unfortunately, even if someone is making a physical play for silver, the silver market might need stronger investment demand just to countervail small spec liquidation pressures. With the silver market this week pulling back to price levels that resulted in a consistent liquidation of open interest back at the beginning of May, it is possible that a large portion of the weak handed futures longs have already been forced out of position. In the final analysis many traders have suggested that the key element to the direction in silver from current levels, will be whether or not the equity market continues to signal slowing growth or will the equity market recover and in a sense stir the silver out of a choppy to weak price pattern. In a sense the importance of the GDP report this has escalated. With the silver market returning to levels that were present when open interest initially began to liquidate ($12.29 in early April), it is possible that the market has found some sort of value zone. However, even if there is a physical play for Comex silver underway, we doubt that the market will translate back into an aggressive bull market without some significant improvement in the economic outlook. Getting to an improved US economic outlook might be difficult, as a stronger GDP could foster concerns of higher US interest rates. Therefore, we have to think that the market is set to make a good attempt to hold near term support of $12.20 to $12.34 but our gut tells us that this market is vulnerable. In fact, those that want to add to longs or enter the long side should probably consider bull call spreads or perhaps even a calendar spread that protects the longer term investment with a short July 15.00 call for 24 cents and a long September 15.50 call for 59 cents. METALS TECHNICAL OUTLOOK 5/25/2006 COMEX SILVER (JUL) 05/25/2006: The major trend has turned down with the cross over back below the 40-day moving average. Daily stochastics are trending lower but have declined into oversold territory. The market's short-term trend is negative as the close remains below the 9-day moving average. The close below the 1st swing support could weigh on the market. The next downside objective is now at 1219.1. The next area of resistance is around 1270.0 and 1293.0, while 1st support hits today at 1233.1 and below there at 1219.1. COMEX GOLD (JUN) 05/25/2006: The close under the 40-day moving average indicates the longer-term trend could be turning down. A negative indicator was given with the downside crossover of the 9 & 18 bar moving average. Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's short-term trend is negative as the close remains below the 9-day moving average. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside objective is 620.0. The next area of resistance is around 649.0 and 666.0, while 1st support hits today at 626.0 and below there at 620.0.
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, 25 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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