The midweek precious metals trading session started with a bit of a recovery effort following Tuesday’s price rout. Market participants pushed the US dollar a tad lower on the index and lifted gold prices by about half a percent in the hopes that the Fed’s meeting minutes might contain a much-awaited hint that there will be some type of easing to come out of the next gathering of the FOMC on August 1st. More on that whole issue will follow below.
Suffice it to say that we have repeatedly warned that pinning hopes (and trades) on a single factor (easing by the Fed) that remains as nebulous as could be, is a market-unhealthy construct. “Fedspectations” have been almost completely defining the tenor in this investment sector ever since the doling out of QE2 back in November of 2010. Then again, upon the unleashing of that stimulus package we were presented with “erudite” articles on why that action meant nothing less than the actual demise of the US dollar-based currency system and the imminent advent of a hybrid gold standard. We were also assured that the Fed had completely run out of stimulus ammo and that there was nothing else left to do but to wait for hyperinflation to take hold. We all know how those forecast panned out.
Spot dealings this morning saw gold advance by $8.5 to $1,575 and silver rise 27 cents to $27.08 per ounce. Platinum and palladium also climbed but by only a more modest $1 and $3 respectively. The former was quoted at $1,421 per ounce and the latter at $578 on the bid-side. One bit of good fundamentals-based news was available to parse as regards rhodium. The noble metal’s surplus is anticipated to shrink by 62% this year and dip towards the 53,000 ounce level, owing to record worldwide automobile sales. Analysts project a price tag of $2,000 to be attached to one ounce of the exotic metal by the end of next year, according to Bloomberg News. That would constitute a 62% gain from current levels, and, for gold to match that feat, it would have to be trading around $2,500+ per ounce.
Once again, the gold bulls attempted to reclaim the $1600 value level but their efforts proved quite unsuccessful by the early afternoon hours on Tuesday. After reaching a spot-offer high of $1,603 in lively morning dealings, despite a firm dollar, the yellow metal finally succumbed to the US dollar’s seemingly inexhaustible strength (and the euro’s on-going weakness) and it fell fairly hard, along with the rest of the precious metals, as well as with crude oil prices. On Tuesday, the Energy Information Administration lowered its projections for global oil demand for this year as well as next.
Lows in gold at near $1,563 per ounce on the bid-side were being recorded by the 3:00 o’clock hour in New York and the day’s former $11 gains turned into $24+ losses in a hurry, amid thin but volatile conditions. Gold closed $20.80 lower last night at $1,566.50 – only $3 from the session’s lows. Silver prices fell back by 2% to very near the important $26.50 pivot point and lost over 50 cents per ounce to close at $26.81 after darting across a $1 range during the session.
The white metal’s price prospects for the remainder of the year have been revised lower by Global Hunter Securities. The firm’s analysts reason that they see more downside risk than upside potential in silver for the next six months as “accumulated supplies of silver in the U.S. combined with stagnant trends in the world’s industrial utilization of silver (especially in computers, photographic processing and other electronics) suggest to us that prices could trend lower, perhaps testing the low $20s during 2H 2012.” Silver has fallen 25% in the past 12 months and 15% during the second quarter of this year. It is a metal with anything but decent supply/demand fundamentals (i.e. ample supply and over-reliance on investment demand at a time when its essential industrial demand is flagging).
EW analysis issued Monday evening notes that unless the recent highs in gold (at $1,625) and in silver (at $28.50) are convincingly overcome – a paradigm that would require a reassessment of short-term trends in the two metals- the targets of $1,300 and $22 respectively, remain on the charts’ at this juncture. By the same token, the breakout by the US dollar on the trade-weighted index is undeniable and it looks as follows on this CNBC-sourced candlestick chart:
Of note is the beginning of the trend-line at 73.5 in September of last year (almost coincidental with the $1,927 high in spot gold). The greenback has been gaining strength ever since. However, the watershed point came with the breach of the 81.5 previous resistance level back in May and a subsequent retest of the same support shelf. The development yields low (or near nil) odds of any imminent break under 80.50 to 81.5 on the scale and it also possibly portends a more dynamic and accelerated upward push to a target of 89-90.
