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Precious Metals Report
An interesting week came to an end and the markets finished very much on mixed signals. The Gold market started very quiet at the beginning of the week but with a friendly sentiment towards 1550 and this became evident in the couple of hours before the Federal Open Market Committee (FOMC) results. Gold rallied through 1551 and elected stops up to 1557.70 but could not hold the levels.The FOMC announcement clarified the stance of the FED for the near to medium future. Low interest rates are here to stay for longer as probably anticipated; QE2 is history and not a murmur about a potential QE3, which needless to say would have pushed Gold to the all-time highs. But it has also been noted that the FED is viewing the potential threat from inflation a lot more serious than 12 month ago, and that will underpin the investors longer term view concerning Gold. The sell-off down to 1500, again, served the purpose to eliminate the very short term-orientated longs from the market.
Bargain hunting from Asia was visible once the price dropped under 1515 but in smaller quantities than expected.
The biggest losers in this sell-off from Thursday and Friday were the white metals Silver, Platinum and Palladium. Silver matched the losses from the Oil market percentage wise tic for tic, and Platinum and Palladium simply had no support given to them and their losses over the last fortnight accumulated at some stage on Friday to $ 160 (down to 1670) for Platinum and $ 90 (down to 723) for Palladium.
These are significant losses and easily designed to change the outlook pattern but let’s not overreact. The losses have been sparked by the announcement of the IEA to release some of the strategic oil reserves over the next 30 days (60 mio Barrel). The Chinese Premier is just about to start a tour through Europe and I would expect him to make some stabilising and Euro-friendly remarks during this trip, which could have very much a positive short term effect on the Euro. This would also help the Precious Metals. The US $ has done quite well over recent weeks but this is much more a Euro weakness than a US $ strength. Gold made new highs last week against GBP but that is probably the least vital highlight as not many investors look at XAU/GBP.
Gold: 1500.00 – Gold is down 37.50 Dollars on the week. Gold lost 3.8 per cent in 48 hours between FOMC on Wednesday evening and Friday close. The “summer hole” is arriving with the beginning of July and the Gold price seems to be very much boxed in on the upside between 1550 and 1560. It is difficult to see what could be the spark to hoist it up to new highs. Maybe we really have to wait for September’s traditional rally.
This “summer hole” is simply an expression for the northern hemisphere where traditionally investor and trading activity is quietens down during July and August. This period has traditionally led to small losses for the Gold price over the summer period but I doubt that this was a.) a small loss and b) this summer will be a quiet period. It seems that there are more than enough geo-political and economic tensions out there to keep the Gold price stable.
It is extremely difficult to try to write something new about the developments in Greece on a weekly basis but the whole “summer theatre” is getting worse and worse. A survived vote of confidence gives just enough breathing space before the politicians stumble to the next vote on the austerity measures on Tuesday. All of that including protests from a - by now - absolutely alienated electorate. The population of Greece, according to the protestors outside Parliament, more and more believes that they have done nothing wrong, they paid their taxes they were asked to (open for debate) and they feel that they don’t owe anything to anybody. This does not bode well for the future and the EU, IMF and ECB are right to be cautious before sinking more EU tax money down into a black hole. The rating agencies have shown “voluntary” participation of the banking community the “red card” and they made it clear that this would create a default event in their view.
The economic slowdown all over the world could provide further signs that Gold and Silver (??) could decouple themselves from Platinum and Palladium. The Gold market does feel heavy and we might have a shift of sentiment towards the downside for the week, but prices between 1450 and 1480 are buy-levels in my personal opinion.
ETF levels gained some support last week and the total overall holdings in ETF’s stand now at just under 68 Mio.ounces, which represent a rise of just over 300k on the week. These figures however, do not include Thursday’s and Friday’s most likely redemptions. I do expect these redemptions to be significant, considering the huge move down.
Support: 1500 and 1485 Resistance: 1558, 1563, 1577
OUTLOOK : Neutral with a hint of bearishness
Silver: 34.25 – Another 155 cents down on the week and the market starts to feel very tired. ETF redemption to the tune of another 5 Mio ounces have further eroded the price base for the metal. A loss of just over 4 per cent is no reason to become downhearted as Silver is more than enough capable of reversing all these recent losses within half a day’s trading, but the slowdown of the world economy has not been lost on the investment community.
Here comes again the question if the glass is half full or half empty. I think that these sell-offs, however vicious they appear to be are helping to stop-out the very short term orientated longs and put the market on a more level footing. Who would be left to buy if everybody is long already and the recently seen liquidations indicate that the market is a lot cleaner now. We might even already have a growing number of shorts in this market, if the price action of the last few days is anything to go by.
ETF: Approx. 5.0 mio ounces redemptions in the week down to just over 448 Mio ounces overall.
Support: 34.12 and 32.50 Resistance: 36.80 and 38.00
OUTLOOK: Neutral for the week with a slight bearish touch
Platinum: 1680 – 72 Dollars up on the week or 148 Dollars down in the last fortnight. The overall economic picture is largely to blame for the sell-off seen. The price tanked down to 1685 on Thursday before tabilizing around 1710. Nevertheless, the pressure continued on Friday and new lows down to 1670 have been made. The prices have been under pressure all of last week so that this excuse about the state of the world economy is only of limited validity. Swiss imports figures suggests that the Platinum inflows indicating further economic slowdown. The wage negotiations in South Africa are underway and they are probably helping to prop up prices somehow as confrontations between NUM and the employers have to be expected. The technical picture of Platinum gives reason to expect good support in the mid to high 1600`s, and I would rather be an opportunistic buyer at further price reductions. My anticipated first buy level would be at 1680, averaging down to 1640 with a stop at 1585.
ETF: No significant changes for the week.
Support: strong 1660 and 1638 Resistance: 1780 and 1810
OUTLOOK: slightly bearish
Palladium: 730 – 28 Dollars down on the week. The same reasoning applies for Palladium as for Platinum, except that the South African wage negotiations play a much lesser role for Palladium. Palladium did test the 200 day moving average last week at 724, and held well. Swiss exports of Palladium into China continued but we can’t exclude more Palladium shipments from Russia into Switzerland later in the year, which would add downside pressure to the market. Some short covering brought us back to unchanged but we are very much neutral at this moment in time.
ETF: some redemptions in the area of 18k down towards 2.1 mio ounces
Support: 724 and 700 Resistance: 785 and 807
OUTLOOK: Neutral
