UBS Warburg:
Gold had a ten-dollar range in US trading yesterday with decent speculative buying seen on the Comex floor. With the US dollar looking weak, especially against the EUR, gold looks set to move higher and challenge resistance at $357. Further volatility looks assured, however.
Gold: News: The Eurosystem’s net reserves of gold and gold receivables fell EUR119 million to EUR130.7 billion in the week ended Jan. 3 due to a quarterly revaluation of reserves and the sale of five tons of gold by a national central bank, the European Central Bank said Wednesday. The ECB noted that the gold sale by the euro-zone central bank, which it didn’t identify, amounted to EUR54 million. The sale was consistent with the Central Bank Gold Agreement of September 1999, the ECB said. In that agreement, which
included the central banks of the Eurosystem, the U.K., Sweden and Switzerland, the central banks agreed to limit gold sales to a total 400 tons a year over five years (Dow Jones).
Trading: In New York, gold traded down to the previous days’ lows of $345/oz but decent speculative buying from one commission house prevented the metal from trading lower. When news of a plane crash in the US broke gold jumped to $350/oz and gold moved higher still once the dollar started to weaken against the US dollar. Further dollar and US equity weakness, together with large and
obvious buying from one speculator kept gold elevated between 353 and $355 for the rest of the session. In Asia, gold traded in a comparatively narrow dollar and a half range with some Australian buying seen against some later Japanese selling. In early European trading gold started quiet around the Asian closing levels before moving back towards the $355 level.
View: The current levels of speculative long position held on Comex are almost unprecedented but in light of the recent additions to the net longs, it seems likely that new money has been attracted into the gold market. Since the size and durability of these flows are unknown and there are few obvious sellers of gold in evidence then gold could hold these levels or even make further gains. We would caution, however, that speculative-led rallies could end as quickly as they have started; physical demand is not supporting the gold price at the current levels.
1m 3m 6m 1y 3y 5y 10y
USD/XAU Impl Opt Vol (Mids) 20.8 19.0 17.7 16.75 14.53 13.46 13
Gold Fwd Rates 1.30 1.25 1.10 0.92
Silver: Trading: In New York, silver opened with a bearish tone as one European bank had been a seller during London hours, however, once gold started to move higher silver jumped four cents as further speculative buying was seen. For the rest of the day silver traded in a range of $4.82 / 4.87.
View: Silver’s catch-up rally has been almost entirely driven by Comex-trading speculators. With a much higher proportion of industrial applications, silver’s prospects looks uncertain at these high levels.
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