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-- Posted Friday, 26 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +5.10, SILVER +11.50
London Gold Fix $652.00 +8.25 LME COPPER STKS 105,625 ml tns
-125 tons
GOLD stks 7.796 ml oz, -32 oz COMEX SILVER stks 112.4
ml oz, -1,193,299 oz OVERNIGHT ACTION: Bargain hunting buying in Singapore and residual support from the US GDP report combines with the upward bias in energies for a mostly bullish condition. GOLD: OUTSIDE MARKET DEVELOPMENTS: The Dollar is only marginally higher on the day so far and probably won't be a big impact on gold, especially when one considers that the market ignored the Dollar yesterday. The trade doesn't expect to see much in way of surprises from the Personal Income and Spending reports this morning but the reports are generally expected to show strong spending and moderately strong income readings and that should be somewhat supportive of gold. With a minor follow through rally this morning oil prices are also supportive of gold. We suspect that the additional gains in the US equity market, in the wake of the GDP report yesterday morning, is also contributing to the positive bias in the gold this morning. In a more important development overnight, South African stocks were specifically lifted by gold miner stock performance and that typically lends a favorable environment for physical gold and for gold futures. In the end, the trade enters the last day of the week with an improved macro economic view, some concern for inflation and surprisingly little news from the geopolitical front. However, the ECRI leading indicator report today could countervail some of the early positive macro economic sentiment, as the leading indicator measures have generally failed to register distinctly supportive readings. We also have to wonder whether or not the often important PCE Index will confirm or deny inflation for gold, as most classic inflation reports have not been kind to gold and that could be because inflation expectations are so high already!
GOLD MARKET FUNDAMENTALS: With the physical and investment demand expectation improved by the combination of a stronger than expected US GDP report on Thursday and the US equity market serving to enhance the improved attitude in the marketplace, we have to think that gold buyers will be drawn toward the market. Overnight there was news that Barrick was losing production and therefore profits in Tanzania, due to periodic power problems and that is more evidence that the effort to increase physical gold supply in the face of attractive prices is being hampered by a series of different issues. In South Africa, the government is apparently looking into way to reverse the job losses in the mining sector, with the government studying ways to force producers to plow back profits in ways that will increase employment. In short, labor issues, electricity supply and other material shortages look to keep profit gains in check and that in turn could slow gold production in the face of rising gold prices. While the market didn't expect to see stellar growth and rampant inflationary signals this week, the macro economic outlook has improved and has at least partially dampened the commodity liquidation tilt that has periodically surfaced. In addition to some minor short covering overnight, the gold market was also supported by physical buying interest and it is expected to be supported by the scheduled US numbers this morning. It is also possible that gold could be supported by recent ongoing declines in silver exchange stocks. Critical support in the June gold comes in today at $651 and then again at $636.8 but the market might not have much in the way of resistance until the $661.6 level. As mentioned before, it is interesting to note that silver stocks at the COMEX have mounted some serious declines this week and that could foster a bullish speculative bulge toward gold if the US equity market can continue to rise and the US numbers today hint at moderate ongoing US growth. Some players are put off by gold because of the back and forth volatility of the last month, but the back and forth action has deflated option premiums somewhat. We would suggest that traders rebuild long positions through a long futures, long put, short call combination, as the US summer gasoline situation might be setting up to rekindle inflationary concerns and perhaps even economic uncertainty. SILVER: OUTSIDE MARKET DEVELOPMENTS: Seeing gold start the session higher today is a positive and seeing the copper market with a positive bid is also supportive. On the other hand, the direction of the equity market looks to be the most important outside market influence today, as the equity market has mounted a pretty impressive recovery this week and that is beginning to lead to improved macro economic sentiment. With oil prices also forging a bit of a recovery this week, the outlook for inflation is revived a bit. In a negative note, the trade saw European traders take note of a decline in silver ETF holdings and that is the first such decline since the issue began trade.
SILVER MARKET FUNDAMENTALS: So far, the Press really hasn't focused much on the fact that exchange stocks of silver have posted some startling declines this week. We suspect that the correction off the May high and the increased volatility of the last two months has prompted some long term bulls to take delivery, or for some physical supplies to be held back off the market. In the end, seeing evidence of tighter supply would seem to give the market a layer of positive fundamentals that could in some way countervail the idea that high prices have altered the fundamentals in favor of the bear camp. However, it still seems like the silver and copper markets are closely tied to the direction of the world equity markets and in turn to the macro economic outlook. All things considered, the silver market comes into the last day of the week, with an improved status and a slightly positive early price bias. However, to truly turn the trend designation back to the upside, the silver market might have to see higher price action, with a surge in trading volume. While the silver market has managed a series of higher lows since the major low on May 22nd, it still seems like bullish control is a tentative situation. In looking at the magnitude of the decline in COMEX silver stocks this week (another 1.1 million ounce decline overnight) the trade sees an offset to the talk that the ETF silver holdings dipped for the first time yesterday to $885 million Dollars and to 70.4 million ounces. While we doubt that the market will suddenly be inspired by the stocks decline, to forge a massive upward thrust in prices, that situation should help reduce the risk to fresh longs. As we suggested in the gold comment this morning, traders might want to re-enter the long side of the market with a long July silver futures, a short July silver call and a long July silver put. METALS TECHNICAL OUTLOOK 5/26/2006 COMEX SILVER (JUL) 05/26/2006: Momentum studies are declining, but have fallen to oversold levels. The market's short-term trend is negative as the close remains below the 9-day moving average. The daily closing price reversal up on the daily chart is somewhat positive. The close over the pivot swing is a somewhat positive setup. The next downside objective is now at 1217.3. The next area of resistance is around 1280.5 and 1299.3, while 1st support hits today at 1239.5 and below there at 1217.3. COMEX GOLD (JUN) 05/26/2006: The cross over and close above the 40-day moving average is an indication the longer-term trend has turned positive. Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The market's short-term trend is negative as the close remains below the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside target is 634.5. The next area of resistance is around 654.5 and 658.5, while 1st support hits today at 642.5 and below there at 634.5.
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.
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 Friday, 26 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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