Gold Declines for Second Day as European Debt Concern Sends Dollar Higher

Gold fell for a second day as concern about a potential Greek default drove the dollar higher and some investors sold the metal to cover losses in other markets on speculation the European debt contagion is worsening.

Gold for immediate delivery declined as much as 0.7 percent to $1,842.25 an ounce, and traded at $1,852.85 at 10:54 a.m. in Singapore, erasing an earlier gain of 0.4 percent. It reached a record $1,921.15 an ounce on Sept. 6. Bullion priced in euros and Swiss francs advanced to all-time highs today.

The dollar climbed for a third day against a six-currency basket to its strongest level in more than six months as investors sought safe assets. December-delivery bullion in New York, which sometimes moves inversely to the dollar, shed as much as 0.8 percent to $1,844.60 an ounce before trading at $1,855.50.

“A spike in the U.S. dollar prompted investors to close off bullish bets in bullion,” Phillip Futures analysts including Ong Yi Ling wrote in a note today. “After weeks of extreme volatility, confidence in gold’s bull was tempered.”
Gold’s 30-day historical volatility, a measure of how much the metal fluctuates, climbed above 33 last week. This is the highest level since December 2008 and compares with this year’s low of 8.7 in June.

Exchange-traded product holdings rose for the first time in eight days on Sept. 9 to 2,149.763 metric tons after reaching a record 2,216.756 tons on Aug. 8, Bloomberg data show. Hedge funds and other money managers added to their net-long gold positions by 4 percent to 184,371 contracts in the week to Sept. 6, data from the U.S. Commodity Futures Trading Commission showed. Twenty-two of 26 traders, investors and analysts surveyed by Bloomberg said bullion will rise this week.

Dollar Strength

The Dollar Index, which tracks the greenback against six U.S. trading partners, had its biggest weekly gain since October 2008 last week after President Barack Obama detailed his $447 billion plan to boost jobs in a Sept. 8 address to Congress. The index is still 2 percent lower this year on concern the economic recovery is faltering as unemployment persists.

“The U.S. dollar has been sold off so significantly but I can’t see any reason for it to rally as the U.S. has got significant problems that it needs to address,” said Gavin Wendt, founder and director of Mine Life Pty. “As people look for haven assets, it’s very possible for both the dollar and gold to go up together.”

Officials in Chancellor Angela Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9.

BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s top banks, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of Greek holdings, two people with knowledge of the matter said on Sept. 10.

“Nothing changes from week to week, there’s always a lot of uncertainty and we’re definitely going to see a continued interest in gold,” Wendt said.
Cash silver slid as much as 1.1 percent to $41.0225 an ounce before trading at $41.2625. Spot platinum was little changed at $1,833 an ounce, while palladium fell 0.4 percent to $733.50 an ounce.(Bloomberg)

Gold Climbs to Record as Platinum Reaches Three-Year High on Haven Demand

Gold rallied for a sixth day to an all-time high as a global economic slowdown and the European debt crisis boosted demand for a haven. Platinum climbed to the highest level in more than three years.

Immediate-delivery bullion gained as much as 1.5 percent to $1,879.05 an ounce and traded at $1,869.95 at 11:09 a.m. Singapore time. The metal is up 16 percent in August, heading for its best monthly performance since September 1999.

December-delivery gold rose as much as 1.6 percent to a record $1,881.90 an ounce. Bullion priced in sterling advanced to an all-time high, while June-delivery gold on the Tokyo Commodity Exchange and December-delivery metal on the Shanghai Futures Exchange climbed to their highest ever. 

Haven Assets 

“You have a look at some of the other safe-haven assets that investors were looking at, the Swiss franc and Japanese yen,” David Lennox, a resource analyst at Fat Prophets, said from Sydney today. “Authorities there have taken steps to try and curb the rise in those particular currencies. That’s probably pushed more investors into gold.” The franc and the yen weakened today.

The metal’s relative strength index has topped 70 since Aug. 5, a signal to some investors who study technical charts that the metal may be overbought and set to decline. Exchange-traded product holdings fell for the first time in five days on Aug. 19 to 2,211.095 metric tons after reaching a record 2,216.756 tons on Aug. 8, Bloomberg data show. Hedge funds and other money managers trimmed their net-long gold positions by 2 percent to 200,086 contracts in the week to Aug. 16, data from the U.S. Commodity Futures Trading Commission showed.

“A sharp correction would be triggered by a quick resolution or a clear direction of policy on the fiscal side to help the market, which I don’t think would happen anytime soon,” Friesen said from Hong Kong. “Conditions still remain bullish.”

Silver Advances 

Spot silver climbed to the highest in more than three months, gaining as much as 2.5 percent to $43.975 an ounce. December-delivery silver surged 3.6 percent to $44.01, also the highest since May 3. Holdings in exchange-traded products increased for a third day on Aug. 19 to 447.5 million ounces.

“Once the market becomes comfortable with where they see the gold price and the gold price trend becoming a norm, then they start to look at silver,” said Lennox.

The ratio of gold to silver fell to a two-week low as investors sought to protect their wealth in the metal that may also benefit from economic growth. One ounce of gold bought as few as 42.5917 ounces of silver today.
Cash platinum advanced as much as 0.9 percent to $1,891.50 an ounce, the highest price since July 2008, and traded at $1,886. Palladium was little changed at $752 an ounce.(Bloomberg)

METALS OUTLOOK: Weaker Trade Possible In Gold If Financial Markets Stabilize

Gold prices could see some weakness next week if equity and other financial markets stabilize and concerns about the public indebtedness ease somewhat, market watchers said, but losses could be limited.

After reaching an all-time high of $1,817.60 an ounce for the most-active December gold futures on the Comex division of the New York Mercantile Exchange, gold prices fell. Market watchers said the rebound in the equity markets and the CME Group’s decision to raise margins on gold futures helped to cut some of the gains in gold. The CME Group is the parent of the Comex.

The most-active December contract was trading late in the day around $1,742.60. While that is down on the day, it is still up about 5.5% on the week. September silver was trading late in the day around $39.114 an ounce, up on the day, and up about 2.3% on the week.

In the Kitco News Gold Survey, out of 34 participants, 23 responded this week. Of those 23 participants, four see prices up, while 14 see prices down, and four see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts

“Gold is currently overheated after a very sharp rally that was very terse in nature, which left it vulnerable to profit-taking,” said Sterling Smith, commodity trading adviser and market analyst with Country Hedging.

For next week, gold’s direction will be dependent “entirely” on how the equities trade, Smith said. The equity markets in Europe received some support from a short-term ban on short-selling by France, Italy, Belgium and Spain. Once that ban is lifted, stock markets could become heavy again because of banking worries there, he said.

He wouldn’t be surprised if gold trades down to the $1,650 area, but said “I would be a very interested buyer there, depending on the condition of the world at that time.”
Jimmy Tintle, analyst at Transworld Futures, noted there is a gap on technical charts around $1,650, which is why some traders believe gold could pull back to that level. He doesn’t think gold prices will fall that far.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said market watchers should keep an eye on the meeting next week between France and Germany to help calm markets. “If (German Chancellor Angela) Merkel and (French President Nicolas) Sarkozy fail to propose fresh initiatives next Tuesday; if they merely recommit to the July 21 agreement, they risk adding to the market turmoil. Increasing the size of the EFSF (European Financial Stability Facility), agreeing on a European bond are interesting possibilities, but something bolder would be better. The problem with bolder moves, however, is the weak political base and the treaty and constitutional barriers to fiscal union,” Chandler said.

Tintle also said there are several U.S. economic reports out next week which could give traders a sense of how the economy is faring. “Given the debacle we had this week, next week’s economic reports could give us a sense of just how the economy is doing. If the reports are good, gold prices will go down. But if the reports are bad or mixed, that could support gold prices,” he said.

Given the weakness in gold, some market watchers wonder if gold will see the same break as silver did when the CME Group raised margins. Keep in mind that so far the CME Group has raised margins only once so far in gold, but did so several times in silver. Brian LaRose, technical analyst at United-ICAP, noted several levels of support gold prices need to hold to avoid seeing a sharp break or change in trend. The first support ranges between $1,710 and $1,735, he said. Gold has been in a solid move higher from its lows around $1,478 and for the metal to continue on that rally, it needs to hold support, he said.

Critical support is at $1,550 and if gold prices break through that level, then he said gold prices may have peaked.

That level is distant -- so far – and other technical analysts have said the $1,680 to $1,650s area offers a closer level of near-term support.

In silver, LaRose said critical support is at $34.437 and if that level is broken, it might be a sign silver has peaked for now.

Tintle said regarding silver, if equities can rally, silver will be strong, too. Silver is trading more on its industrial usage qualities and less on its safe-haven allure. He said support for the metal is seen around $37 basis the September futures contract. Below that support comes in at $33.50. (Kitco- Exclusive News)

MF Global: Base Metals Rebounding From 'Quite Oversold' Conditions

LME base metals are higher, as are U.S. stock-index futures. “We could see a rather substantial rebound off the lows set in over the course of the day, as markets are now quite oversold, and likely overshot the mark yesterday in terms of the news that triggered the sell-off in the first place,” says MF Global. “Granted, the S&P downgrade was significant, but we would argue that it was not totally unexpected--or wrong.

Moreover, the downgrade did not impact sectors that normally would be crushed by this kind of announcement, namely, the dollar and the U.S. bond market, both of which rallied sharply yesterday. This is in stark contrast to how poorly both the euro and the European bond markets behaved when trading agencies downgraded the debt of euro-zone countries.”

There were worries of the U.S slipping back into recession. “The latter is a legitimate concern, although we do not think it will transpire, as the economy still seems to have enough momentum behind it, weak as the forward thrust seems to be,” says commodities analyst Edward Meir. “Moreover, we should not underestimate the beneficial impact of the decline in energy prices in freeing up extra cash for the consumer, while moderating inflation readings, particularly in emerging markets countries.” (Kitco News)

Gold May Climb Toward Record Price After Signal on Bond Default by Greece

Gold may climb toward a record in New York on demand for a protection of wealth after European officials signaled Greece may default on government bonds as part of a second bailout.

Luxembourg Prime Minister Jean-Claude Juncker said he couldn’t rule out the “possibility” of a so-called selective default on Greek debt. Germany and France will present an agreement on addressing Greece’s debt crisis at a meeting today. Holdings of the metal in exchange-traded products rose 0.1 percent to a record 2,122.6 metric tons yesterday, data compiled by Bloomberg data show.

While the agreement “raises the chances that a solution will be presented, there is no reason for euphoria,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in a report. “Several attempts at finding an agreement have already failed. Against this backdrop, gold remains in demand among investors.”

Gold for August delivery rose $2.20, or 0.1 percent, to $1,599.10 an ounce by 8:01 a.m. on the Comex in New York. The metal reached an all-time high $1,610.70 on July 19. Immediate- delivery gold was little changed at $1,598.40 in London after reaching a record $1,610.10 two days ago.

Gold is up 13 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index of equities gained 2.8 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities is up 9.9 percent and Treasuries returned 3.5 percent, according to a Bank of America Merrill Lynch index.

Investment Demand

“Investment demand is still very strong as there are still many uncertainties in the global economy,” Dick Poon, precious metals trading manager at Heraeus Ltd., said by phone from Hong Kong. “We see a lot more scrap emerging in the market this week, which has offset some of the investment demand.”

Euro-area government chiefs will convene today for the second time in a month as they aim to break a deadlock over a new Greek rescue. German Chancellor Angela Merkel and French President Nicolas Sarkozy reached an agreement on Greece after seven hours of talks in Berlin and details will be released at today’s summit in Brussels.

Separately, two officials familiar with talks on the rescue for Greece said governments may provide a guarantee on the nation’s debt in the event of a default.

 

Debt Limit

Barack Obama’s administration signaled it may accept a short-term increase in the U.S. debt limit only if it’s combined with a major agreement to cut the deficit. President Obama met with top congressional Democrats as the Aug. 2 deadline for raising the $14.3 trillion debt limit nears.

“As the U.S. and Europe appear to move nearer towards solving their debt problems, gold may face some selling pressure,” said Steven Zhu, operations manager at Yinjian Futures Co. “Until there are clear signs that everything is good in the world, we favor gold as a safety play.”

Silver for September delivery in New York rose 0.8 percent to $39.865 an ounce. Palladium for September delivery gained 0.7 percent to $798.95 an ounce. Platinum for October delivery was up 0.3 percent at $1781.50 an ounce.(Bloomberg)

Crude Oil Mid-Week Analysis for the week of 4th July, 2011

After a two-day consolidation, August crude oil surged to the upside. The rally was set up by last week’s closing price reversal bottom at 89.61 and penetration of several technical points on the daily chart.

The key area which was successfully tested on the weekly chart was the retracement zone at 94.98 to 90.13. This area represented 50% to 61.8% of the range from the May 2010 bottom at 74.43 and the May 2011 top at 115.52.

The first upside resistance on the weekly chart was reached on Tuesday at a steep Gann angle down from the 115.52 main top at 97.52. A penetration of this level will indicate strength and the potential for a 50% test of the last break from 115.52 to 89.61. This target is 102.57.

Investor sentiment rose on Tuesday following the U.S. holiday. Two events triggered renewed optimism by investors for higher prices. Firstly, Barclay’s raised its 2012 forecast for Brent and U.S. crude oil, and secondly, Saudi Arabia slightly reduced the price of oil it charges to its Asian customers.

A rise in U.S. factory orders in May also triggered renewed demand as investors increased bets the U.S. economy would strengthen during the second half of the year.

Despite the outlook for improving fundamentals on the demand side of the equation, news that Portugal’s debt rating was sliced may renew fears of contagion in the Euro Zone. This could increase demand for the U.S. Dollar as a safe haven investment, thereby putting pressure on commodities like crude oil.

The technicals and fundamentals both support continued strength in crude oil the rest of the week, however, the up move may be muted if the debt situation in Portugal causes the Euro to tumble and safe haven currencies to rise.
Factors Affecting Crude Oil This Week:

• Less than a week since Greece approved its austerity measures, in a move that underpinned crude oil prices, renewed interest in Portugal’s debt issues may dampen gain in the crude oil market. Oil traders will have to watch this event unfold on a day-to-day basis. This uncertainty may not be enough to derail the rally in crude oil, but it may be enough to slow down the current upside momentum.

• Wednesday’s normal U.S. Energy Dept. oil inventory report has been delayed until Thursday due to the U.S. holiday. Domestic crude oil stocks are expected to show a decline of 2.3 million barrels.

• On Thursday, the European Central Bank meets to discuss monetary policy. Expectations are for a 25 basis point hike, however, a recent slow down in the Euro Zone economy may prompt the ECB to refrain from further hikes for several months. A weak outlook for the Euro Zone economy by the ECB may hurt demand for crude oil.

• Traders should watch for potential volatility because of conflicting analyst oil reports. Earlier this week, Barclays raised its 2012 forecast, however it left its 2011 forecast unchanged for Brent, but cut it for U.S. crude. Citigroup is predicting Brent may fall to $90 by September, but rise longer-term if Saudi Arabia cuts production and increased supply from the recently released strategic petroleum reserve oil.

• The U.S. Non-Farm Payrolls report on Friday is expected to show an increase of 87,000 jobs. A bearish number will indicate the economy is slowing. This could mean less demand for crude oil. (Commodities Mansion)