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-- Posted Wednesday, 31 May 2006 | Digg This Article
METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -0.60, SILVER -9.00
London Gold Fix $654.00 +1.75 LME COPPER STKS 112,175 ml tns
+6,150 tons
GOLD stks 7.795 ml oz, -97 oz COMEX SILVER stks 119.0
ml oz, -1,028,915 oz OVERNIGHT ACTION: Tokyo gold slightly higher, but prices weakened as the night progressed. GOLD: OUTSIDE MARKET DEVELOPMENTS: While the Dollar gains this morning are very limited, that action has apparently unddermined gold in the early going. After some moderate overnight weakness in international equity markets, prices have manage a bit of a recovery and that could temper some of the minor pressure being seen in the gold market in the early trade. With the rest of the metals starting out weak and oil prices banking some profits there is a generally bearish tilt coming from outside markets. In a positive note, the gold market did see a favorable German employment report overnight and European equity markets have managed to climb back into positive territory just ahead of the start of the US session.
GOLD MARKET FUNDAMENTALS: Comments from the Gold Fields CEO in the Sunday New Zealand times fostered significant price volatility. With the statements coming from the head of one of the world's largest gold mining concerns one would expect the comments to carry significant weight in the marketplace. While, the Gold Fields executive did predict a pullback to $500 in gold, he also suggested that even higher gold prices were ahead, and therefore the overall impact from the story is apparently being seen as supportive. Apparently, the Gold Fields CEO also made the case that gold was extremely cheap relative to crude oil and that the current correction could help stimulate jewelry demand. In another partially undermining story, South African sources have suggested that sales to India this year have been pared by 1/5th because of high prices! Therefore high prices are apparently having some impact on physical and investment demand and with the recent threat of slowing US economic activity (arising out of US equity market weakness) it seems that at least a portion of the May slide in gold prices is justified by classic supply and demand fundamentals. In the near term, the slight bounce in the Dollar overnight seems to have given the bear camp a minor early edge and with the rest of the metals weaker, one always has to fear a bout of broad based commodity selling. On the other hand, seeing an improvement in German employment figures overnight and a recovery in global equity markets have given the bear camp some pause. While the German payroll readings overnight are somewhat helpful to gold, many trades continued to be concerned about more near term commodity based selling pressure. We also note quite a few stories in the overnight Press suggesting that the speculative bubble in metals has run its course, and that could foster even more two sided trade ahead. In order to directly rekindle the upward track in prices, the market needs to see a more salient growth view in the US and the market also needs to see a clear inflation track. Right now, the gold market is suspicious of growth and despite the rise in energy prices yesterday, the Fed has convinced a large portion of the market that inflation remains under control. Therefore, this market seems to be vulnerable and the most likely savior for the bull camp is a progressively weaker Dollar! However, unless the June Dollar slides under 84.00 we doubt that gold will be able to mount a rise back above $663 and could under normal back and fill action see a temporary dip down to $640. In conclusion, the gold market will be greatly influenced by the equity market and right now the equity market action is a bit negative for gold. SILVER: OUTSIDE MARKET DEVELOPMENTS: With most of the metals markets weak early today, we suspect that silver will start the session out with a partially negative bias. However, volatility in copper and particularly lower copper prices, seems to have undermined silver speculation. Like the gold market, the silver market needs a much more optimistic macro economic view as physical and investment demand psychology is softening. Cooling share volume and a slide in ETF silver holdings is another element dampening investment interest in silver and for that reason alone, the outlook for the US economy is being seen at the main force driving silver prices in the near term.
SILVER MARKET FUNDAMENTALS: While the exchange stock decline continued overnight with a 1 million ounce decline, the trade so far is only partially interested in the pattern of declines. Some players have suggested that exchange stocks really aren't tight until they fall below 100 million ounces, while others suggest that sagging platinum and copper prices (markets that have much tighter fundamentals than silver) mean that the overall demand outlook is in question. While it may sound like a broken record, many silver traders continue to look over their shoulders at the direction of US equity prices, as silver, platinum and copper at moderately high historical prices levels are heavily dependant on positive progression in the world economy. Overnight India reported a GDP growth of 9.3% over last year in the January through March quarter and that should have been more supportive of gold and silver overnight. In short, it seems like the silver market is trying to hold a positive track in prices, but there doesn't appear to be enough investment interest to consistently dominate the daily trading action. While the market has managed a pattern of higher highs and higher lows since the mid May low, we still get the sense that the silver bulls hold only a tenuous edge in the marketplace. While silver can rally in the face of disjointed macro economic sentiment, we are doubtful that a coordinated broad based rally will unfold in the metals without a fairly optimistic forward view. In fact, as mentioned before, the platinum and copper markets might be effective leading indicators for silver, as their fundamentals appear to be significantly tighter and their supplies much more finite. Therefore, unless oil prices are rising sharply, which creates uncertainty or equity prices are rising sharply, which creates hope for renewed demand, we have to think that the bulls will have to fight for minor upside gains. Near term resistance is seen at $13.52 and close-in support is seen down at $12.79, which means that prices could end up fluctuating in a rather significant range. METALS TECHNICAL OUTLOOK 5/31/2006 COMEX SILVER (JUL) 05/31/2006: The crossover up in the daily stochastics is a bullish signal. Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. The close above the 9-day moving average is a positive short-term indicator for trend. The gap upmove on the day session chart is a bullish indicator for trend. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at 1361.3. The next area of resistance is around 1333.5 and 1361.3, while 1st support hits today at 1280.5 and below there at 1255.3. COMEX GOLD (JUN) 05/31/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is now at 641.1. The next area of resistance is around 661.1 and 670.0, while 1st support hits today at 646.7 and below there at 641.1.
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 Wednesday, 31 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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