Morning Gold Fix – October 5, 2011
FMX | Connect – www.fmxconnect.com - (Reported 10/5/2011)
The following is a summary of yesterday’s US gold activity and a recap of Asia & European markets overnight. It includes our proprietary options analytics and news stories from industry professionals.
Summary
December Gold settled at $1,616.00 per troy ounce on Tuesday, a loss of $41.70 for the day.
December gold was up $8.3 to $1624.3 per 100 troy ounces as of 8:50 am EST this morning. The Dec U.S. dollar index was down 0.444 to $79.660. October platinum was down 6.8 to $1455.1 per 50 troy ounces. Dec silver was down 27.4 cents to 29.565.
Market Recap
Summarizing market activity poses unique difficulties when trading is so highly correlated. It is harder to assess the importance of singular events and the performance of individual assets against the larger trends. The S&P 500 Index trended down most of the day, traded below 1080 and in the last hour of the day rallied 45 points for a 2.25% gain on the day. The energy complex stopped in its tracks and reversed, with crude oil going from settling $2 lower to trading above $78. The prime culprits appear to be a rallying Euro, and declining dollar, which broke above and below their respective 100-day moving averages late in the afternoon. Market participants remain fixated on Greek default scenarios, which are eclipsing other events like Ben Bernanke’s appeared before Congress today to defend the decisions of the Federal Reserve. How to best allocate capital in the face of global economic contractions and a treacherous trading environment remains a struggle for investors.
Bullion gave back Monday’s gains and then some, briefly dipping below the 1600 level at the height of the sell-off. Volatility was higher on yesterday’s $30 rally and volatility was higher on today’s $40 sell-off. While this can be interpreted many different ways depending on personal biases, we are going to go ahead and say that overall this should be interpreted as bearish. It is true that many investors do remain bullish on the metal and prefer to express their opinion in options rather than futures. This allows speculators to maintain positions more readily in the face of large moves and changes in margin requirements. More important to us however are two factors: First, gold is currently a put-skew market, which means volatility is bid during a sell-off. Secondly, the CME has consistently quashed volatility by raising margins relentlessly over the past several months. Persistently high levels of volatility are therefore a better indicator of a strong sell-off than a rally for us. The activity on the trading floor support this sentiment, with bidding for December puts and put spreads garnering a lot of attention. While some short-term speculators are buying front-month calls as they are offered cheaper, fences across the broader term structure are still moving toward calls.
Market Prices
In the News
Bloomberg (Reported 10/5/2011)
Chile, the world’s biggest copper- producing nation, expects mining companies to maintain their investment plans even after prices slumped by the most in three years and is seeing few signs of weaker Chinese demand. Spending on new or existing mines will reach $67 billion over the next eight years, Mining Minister Hernan de Solminihac said in an interview in London yesterday. Codelco, the state- owned copper company, will account for $20 billion of the total. While there has been “some adjustment” in China’s imports, the change hasn’t been “significant,” the minister said. Copper Rout Unlikely to Halt Chile’s $67 Billion Bet on Mines: Commodities
Reuters (Reported 10/5/2011)
Gold fell more than 1 percent on Wednesday, extending the previous day's hefty losses, as rising equities diverted some interest from the precious metal and as investors remained wary of buying into the market after its recent volatility. Spot gold was down 0.9 percent at $1,605.29 an ounce at 1101 GMT. It shed 2 percent of its value late on Tuesday to dip temporarily below $1,600 an ounce, as investors sold stocks of the metal to cover losses on other markets as shares slid. Gold slides 1 percent as volatility spooks investors
Kitco (Reported 10/5/2011)
U.S. and European stock markets are higher early Wednesday amid reports monetary officials in Europe are working to shore up the weak European banking sector--in case Greece should actually default on its debt obligations in the near term. As you can see, this is not robustly great news coming out of Europe. The world stock markets are starting to focus on other matters and have mostly factored into prices the messy EU debt situation. Still, the EU debt crisis continues to be a major underlying bullish factor for the gold market. Comex Gold Trades Near Steady As Market Consolidates
Technical Overview
DEC GOLD
Overall the market is bearish and yesterday’s outside bear day could end near term corrections. A close under 1591* will send selloffs to test 1560/154850 support for a larger downturn. Stable action over 1591* favors additional corrections. However, still expect residual bear forces to blunt retracements under yesterday’s high. A pop over 168150 is needed to boost recovery moves to 169180* and 171590*.
DEC SILVER
The market is bearish and may again slip to test 28085* monthly support. A close 28085* should release bear trending trade to attack the recent swing low. Another rebound from 28085*- alerts for a shift back to recovery action. A pop over 3143 will boost recovery rallies. A close over 3308 is needed to fuel retracements to test 3519*.
DEC COPPER
The market is bearish with trade alerting for a preliminary breakout under last week’s low. A close under 296 is bearish and could trigger another washout leg to 280. We may see a swing back to corrective congestion at 315-32965*. However, closes over 32965* and 34635* are needed to start a bottoming turn and sustained corrections.
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