This morning’s New York trading action started off on the downside once again for the metals. Gold practically erased yesterday’s gains and dipped to near the $1,640 (about 2.5% under the 200 DMA) per ounce while silver also retreated from last night’s closing values and dropped to near $32.20 the ounce. This morning, gold reacted not as much to the small-to-nonexistent initial gains in the US dollar but decidedly so to the news of possible further Indian import restrictions on bullion. More on that significant topic will follow below.
Platinum and palladium fell as well in early Friday trading in New York. The former shed $18 to slip to the $1,675 level on the offer side while the latter declined $6 to $703 per ounce. Rhodium showed a loss of $25 to a bid price of $1,450 per ounce. Background fundamentals for the noble metals continue to be quite supportive however.
Albeit there are concerns about the current level of automotive demand from, say, China, the overall picture in platinum and palladium appears to be quite a bit more promising in terms of potential price performance that could be the case for gold and silver in the near to medium terms. In the background, crude oil gained 40 cents to trade at $105.5, copper advanced 0.25% and the greenback was 0.05 higher on the trade-weighted index, quoted at 80.30 at last check.
Dow futures appeared to be inching higher following yesterday’s better-than-expected jobless claims data and as investors awaited US inflation numbers, industrial production, and consumer sentiment. The numbers on inflation were in line with expectations among polled economists and were largely driven higher by black gold prices. Food prices went down. BTW, such economists’ "expectations" are factoring in a US inflation level of…2.4% for the next decade; not quite Zimbabwe just yet, it would appear.
On the technical side for gold and silver, we note one DailyFX.com technical analysis that spoke of the formation of a bearish “Dark Cloud Cover” candlestick pattern underneath the previous price support that has now morphed into overhead resistance, at near the $1,720 level. The Wednesday evening short-term Elliott Wave market update missive noted that gold prices had essentially not made upside progress over the past 7.5 months and that the Wednesday session closing at the $1,642 mark was beneath the closing achieved by gold on August 2nd of last year.
Based on the monthly charts, the EW team sees a complete five-wave rally in gold from August 1999 to September of 2011 and an opportunity for correcting the entire advance as having opened up. The next wave down should first encounter support near $1,525 and a breach of that figure could send prices towards the $1,300 area which was a fourth-wave low. In silver, the charts apparently reveal a completed H&S (head-and-shoulders) top and a break beneath the neckline at $32.97 with a potential target the almost matches the December bottom around the $26.80 zone. Strong overhead resistance is now in place at the $35.70 level in the white metal.
Wednesday’s price washout in gold was followed by a modicum of bargain hunting yesterday but it was a move largely bolstered by a bit of a slip in the US dollar and a relatively firm crude oil market. Other than that, the speculative crowd was busy studying the damaged technical charts, fielding margin calls, and gauging the sentiment among investors. The latter was judged by one New York professional trader as “ruined” in terms of the hopes for any type of quantitative easing to come in the foreseeable future. The dip beneath the 200 DMA near $1,680 placed gold in what economist Dennis Gartman termed as “dangerous territory.”
One set of less-than-often – in fact, rarely – quoted reasons for gold prices to potentially work their way lower comes from Wednesday’s analysis by Seeking Alpha contributor Ananthan Thangavel, the Managing Director of Lakshmi Capital and author of The Commodity Analyst. Mr. Thangavel is noted for having called the precise top in the silver market last year and for having forecast gold’s slide in September as well. While he too focuses on the fact that the Fed has been “standing pat” since the end of QE2 and that such inaction (along with US dollar vigor) is contributing to waning enthusiasm in gold and other commodities, Mr. Thangaval delves deeper into the situation and uncovers some surprising (to some) facts in the process.
To wit, while the majority of players in the commodities’ space have benefited from the expansion of the Fed’s balance sheet (QE1 +QE2) their continuing expectations for more of the same are flying in the face of a reality in which, by now, not only is there no further likelihood of that balance sheet swelling much further (or in a non-inflation-sanitized manner), but also one in which the huge inflation that was expected as an outcome of QEs I and II has not materialized. Aside from that, the US treasury market may be telling us something quite “meaningful” at this juncture and it applies to gold and even more so to silver. The signs in the US bond market also point to expectations of a stronger economy of late.