Morning Gold Fix – May 3, 2011
FMX | Connect – www.fmxconnect.com - (Reported 5/3/2011)
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
June Gold settled at $1557.10 per troy ounce on Monday, a gain of $.70 for the day. Gold options remained firm in the face of heavy overnight selling.
June gold was down $12.0 to $1545.1 per 100 troy ounces as of 8:30 am EST this morning. The June U.S. dollar index was up 0.236 to $73.375. Jul platinum was down $11.3 to $1864.4 per 50 troy ounces. Jul silver was down 220.9 cents to $43.875.
Market Commentary
Best to start today’s commentary with a recap of Friday’s post-Comex close activity. On Friday, the market ran up from its close in the 1556 area to approximately 1565. Volatility and skew reacted very well to that move. The settlements that you saw on Friday did not reflect where the market went out for the weekend. This is important because despite today’s market’s close, which settled less than a dollar higher than Friday, the volatility and skew changes from Friday afternoon held.
On to today’s action. Last night futures sold off to $1440.50/ounce on the back of heavy silver selling and dollar strength. Several rumors circulated the market about silver. One was that the increase in margins by FCMs to a multiple of the CME’s own requirements caused the sell-off. Another involved dollar strength and Chinese growth slowing. Our favorite was that George Soros was dumping all his precious metals. It’s our favorite because its exactly what we would say if we were George Soros and wanted to buy more. One thing is important to note. The origin of the selling last night happened in New Zealand hours and came out of the physical market, NOT the futures market. This was not, in our opinion, margin related at all. We think this was someone who wanted or needed to get out. It may have been related to Columbia announcing it would not nationalize its mining industry, but this should have been baked into the market all ready.
Back to gold. Gold’s weakness was on the back of silver, but it held up very nicely. When the Comex opened, volatility was unchanged from the Friday post-Comex increase. As the market reversed and rallied volatility exploded, with the June at-the-money straddle going to $63 at one point. The August at-the-money straddle went as high as $118 and for December, up to $194. The futures market reached Sunday night’s highs of 1577 and broke them by 40 cents. It lingered between 1570 and 1575 long enough for June and August calls to catch yet another bid, but then the market sold off. Amazingly, options were not sold in the down move. We think this is because of simple exhaustion. Many market makers were hands-off and when called upon for liquidity all that could be heard from many was the chirping of crickets.
Near the highs a fund bought one to two thousand December 1400 puts at 29.5 with futures. One can only think this was a bullish play. When the market approached unchanged, volatility backed off to Friday’s post-Comex levels. As of this writing, we are trading 1545 and volatility has softened across the board but once again, June has caught a bid. It would seem downside fears are growing. On a final note, the post-close futures sell-off came on the heels of Tim Geithner’s statement that the Treasury would cease issuing certain securities until the debt celing was raised. We view this as staged bad-cop statement so President Obama can raise the ceiling with little worry. Why this is bearish for gold, we have no idea. The president’s recent success killing OBL should give him all the political capital he needs. We remain buyers of dips but now we are selling rallies, whereas before we were not.
Market Prices
Technical Analysis (GRI)
JUN GOLD
The market is bullish and suggesting an aggressive bull phase that favors follow through rallies early this week. Accelerating advances from current levels gives bull signals on the weekly chart for a blow off to 1700. If trade stops around the 1570 today-Wednesday, be prepared for 1-2 days of corrections, but any dips should find support at 152460*. A couple day consolidation should quickly bull flag. A close under 152460* signals a retracement to test 150110* for a peaking turnover.
JUL SILVER
The sharp spike lower signals an initial peaking turn, attacking under a key 43645* and 4311 support levels. Residual bull forces may try to consolidate the extreme moves from yesterday near 4500+/-. A close over 46925 would suggest secondary rallies, but a push over 4921 or close over 4860 is needed to rekindle bull trending moves to reach for new highs. Posting a close under 43645* or sustained action back under 4311 alerts for peaking trade that could send a break along 4000+/-.
JUL COPPER
The market is triggering a preliminary downturn from sideways congestion and hints for selloffs to 404- and potential to 39125 weekly support. A drop under Monday’s low or close under 41465 should promote selloffs. A reluctance to stay under 415 could trigger modest rebounds to congestion in the 420’s. A close over 43020* is needed to trigger a reversing turn back to higher prices.
In the News
Bloomberg (Reported 5/3/2011)
The rand depreciated the most against the dollar in two weeks after commodity prices dropped, damping demand for South Africa’s metal exports and shares in the country’s mining companies. The rand weakened 1.1 percent to 6.6510 per dollar at 10:41 a.m. in Johannesburg, its biggest intraday decline since April 18. That made South Africa’s currency the worst performer out of more than 20 emerging-market currencies monitored by Bloomberg. The rand slipped 0.5 percent to 9.8376 per euro. Rand Depreciates Most in Two Weeks Against Dollar on Drop in Metal Prices
Reuters (Reported 5/3/2011)
Gold steadied on Tuesday after hitting record highs above $1,570 an ounce the previous day following the death of al Qaeda leader Osama bin Laden, and silver recovered from its biggest one-day drop in 29 months. Gold shrugged off the potentially negative impact of a slightly stronger dollar, which edged up 0.2 percent against a basket of major currencies . Gold steadies after bin Laden; silver stabilizes
NSFutures (Reported 5/3/2011)
Volatility in the gold market continues to be two sided, with the initial bias today pointing downward. News of a hike in Indian official interest rates (th 9th hike since March of last year) might be serving to undermine the gold market, as rising interest rates are generally seen as an inflation tempering development. While equity markets in Asia were mixed during overnight trading, stock indices in Europe are generally weaker this morning. Early indications are for US equity markets to open today’s session with moderate losses. Daily Metals Commentary.
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