US DAIY METALS COMMENTARY
Thursday, November 09, 2006
METALS: OVERNIGHT CHANGE to 4:00 AM: GOLD +0.50, SILVER +3.00
London Gold Fix $618.00 -7.50
LME Copper stocks 146,575 ml tns, +2,325 tons
COMEX Gold stocks 7.525 ml oz., -64 oz
COMEX Silver stocks 107.3 ml oz +570,336 oz
OVERNIGHT ACTION: After some initial strength in Tokyo, gold prices finished lower.
OUTSIDE MARKET DEVELOPMENTS: While the US economic report flow resumes today, it is not clear whether or not the metals will take much direction from the scheduled reports. However, seeing the crude oil market rise to within striking distance of two weeks highs, might put the energy complex in a position to begin supporting gold and metals prices again. The Dollar is trading right on its mid point of the week into the opening this morning but still seems to be in a weak technical and fundamental posture and that might be seen as a slight underpin for gold prices. In fact, a number of international Press stories overnight are suggesting that the results of the US election are likely to contribute to further Dollar weakness ahead and therefore many traders will be watching the December Dollar closely for any sign of a failure at the 85.00 level. With the exception of some weakness in the platinum market this morning, most of the metals markets are showing an early positive bias and that might allow the gold market to focus in on the action in the Dollar and Oil.
GOLD:
GOLD MARKET FUNDAMENTALS: As suggested already the international Press thinks that the shift in control of the US House and Senate is a situation that will undermine the Dollar further and a weak Dollar has been a key pillar in a number of forecasts that projected $700 gold prices before the end of the year.
In other potentially supportive news overnight, South African gold production was found to have declined by 5.1% (in September versus year ago levels) and that point is given more credence by the knowledge that Non gold production in the same period actually increased versus the prior year. Predictions from the Goldcorp CEO that gold prices would hit $850 an ounce in the coming two years is supportive but many might discount that forecast because it comes from a gold producing entity.
Apparently there was some trade buying in Japanese gold overnight and that might be the result of a focus on the US Trade balance report due out this morning. While the trade is expecting a decline in the US Trade Deficit figures this morning, that number has had a tendency to surprise. However, with the market already expected to lean on the Dollar, a disconcerting Trade Balance reading could become a flash point. Countervailing the bullish early interest today in the gold market, is a lingering concern for slowing in the global economy and with the Japanese stock market down overnight off that theme and the US equity market also periodically fretting over the potential for severe housing derived slowing, the gold trade has to be on the watch for deflationary type selling. However, seeing the equity market shake off the election and forge new highs and seeing strength in energy prices at the same time, could shift the deflationary threat in gold into a much more positive situation. While the gold market has rejected a large portion of the downside extension overnight, it would seem like the technical structure of the gold market was damaged somewhat with this week's washout. In fact, short term technical indicators are in a sell mode this morning and a slide down to $613.2 wouldn't be that surprising. In fact, unless the December gold contract manages to rise into and through the numbers this morning the bear camp might be capable of controlling prices. In fact, we would give the bull track until the first wave of numbers to put prices back above $620.5, but then we would become increasingly defensive toward the market.
SILVER:
SILVER MARKET FUNDAMENTALS: Like the gold market, the silver market has somewhat failed on the charts, but so far the December contract has managed to hold above a critical up trend channel support line of $12.42. However, distinctly positive leadership is lacking in the gold market and some in the trade are beginning to fret over the recent pattern of rising exchange stock levels. In fact, with the exception of some fund selling interest, the Press really hasn't picked up on small spec or investment liquidation interest and that might increase the odds that silver will avoid a more significant technical washout on the charts. While the silver market hasn't paid that much attention to the ebb and flow of the global economic outlook, we suspect that the pace of the US numbers today and the overall direction of equity and energy prices will be very important to the bull camp. That $12.42 level today could be very critical to the trade, as the funds were noted sellers yesterday and the charts can hardly tolerate any additional weakness. We continue to suggest that long futures players need the coverage of short calls and long puts, even though the trend in silver looks to generally remain up.
METALS TECHNICAL OUTLOOK 11/9/2006
COMEX SILVER (DEC) 11/09/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The close above the 9-day moving average is a positive short-term indicator for trend. The close below the 1st swing support could weigh on the market. The next downside target is now at 1237.1. The next area of resistance is around 1266.0 and 1281.0, while 1st support hits today at 1244.1 and below there at 1237.1.
COMEX GOLD (DEC) 11/09/2006: The daily stochastics have crossed over down which is a bearish indication. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The market's short-term trend is negative as the close remains below the 9-day moving average. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is now at 611.6. The next area of resistance is around 622.7 and 629.1, while 1st support hits today at 613.9 and below there at 611.6.
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