Oct. 28 (MF Global) -- Price Outlook
The gold market could maintain its uptrend in today’s trade as it approaches key resistance near the Sep 16th low at $1,765.40. Support will come from its newfound ability to trade higher amid both positive and negative news from the Eurozone, small increases in investment flows, and from growing speculation over rate cuts in China. A rise in gold may boost silver up toward resistance at the $36.00/oz level. We favor trading gold as a positive affair to $1,765.
Gold prices settled $24.20/oz higher on the day while silver finished +$1.80/oz. Markets reacted in a mixed way initially to news from the EU that it had come to an agreement with private banks to take haircuts on Greek debt holdings totaling 50% or €139B. Greece would bring its debt-to-GDP down to 120% while European banks would bring Tier 1 capital up to 9%. That move would cost €148B and if they’re unable to do so, their efforts would be supplemented by the EFSF. Gold prices oscillated near unchanged for the first several hours of the day until upside momentum was regained around mid-session. Strength in stocks helped, as weaker stocks several weeks ago had offered pressure on gold prices at the time. Support was also given by the gain in ETF holdings on Tuesday evening, as well as by oil prices which rebounded $3.76 in yesterday’s session.
Technical factors also remain a plus for the market after Tuesday’s trade broke out above the Oct 17th high at $1,696.80. That was followed a day later by Wednesday’s surge above the Aug 25th low at $1,705.40 and puts the market on a path to rally up toward the Sep 16th low at $1,765.40 (chart above. That level is backed up by the 62% retracement of the Sep downtrend at $1,780. We’re also encouraged by the change in open interest, which has increased 10,054 contracts since prices bottomed on Oct 20th. Since that time, the market has increased $110.60/oz and suggests that new longs are being built.
-The deal is good but not great. The size of the levered fund was expected to be €1.0-€2.0 trln but getting numbers is a surprise, after suggesting yesterday that none would come until next month.
Upcoming Metals/Dollar Events
Fri - Japanese Household Spending, CPI, Unemployment
Mon - ECB Trichet’s last day
Nov 1-2 - FOMC Meeting, Bernanke Press Conference
Nov 3rd - ECB Meeting (Draghi’s first)
Nov 3-4 - G20 Leaders Summit in Cannes France
Nov 7-8 - Eurogroup FinMin meetings
Nov 9th - Dollar Liquidity Operation
Nov 29-30 - Eurogroup FinMin meetings
Dec 7th - Dollar Liquidity Operation
Global Economic & Dollar News
The dollar fell sharply yesterday as safe-haven trades fell out of favor. The EU announced a plan for haircuts on Greek debt, recapitalization of European banks, and leverage of the EFSF to €1.0 trln. The plan was well received although it fell short of the most optimistic expectations for leveraging the EFSF up to €2.0 trln. The euro traded more than 3.0 points higher against the dollar late in the afternoon.
» China’s Baoshan Steel said that some customers had asked to delay deliveries because of tightening credit.
» The EU set a 50% haircut on Greek debt through a voluntary bond exchange. It boosted the rescue fund’s capacity to €1.0 trln with it being leveraged 4-5 times. China may participate. Greece’s debt will be down to 120% of GDP by 2020 and banks will raise tier 1 capital ratios to 9% by June 2012. The ECB will maintain bond purchases in the secondary market.
» Germany’s Merkel said that the world’s attention was on these talks and that “we Europeans showed that we reached the right conclusions.”
» France’s Sarkozy spoke to Chinese Premier Hu Jintao to inform him of the developments.
» IIF’s Dallara said that the agreement provided a historic opportunity for Greece. Write-down will lessen its debt burden by €100B.
» ECB’s Weidmann warned the latest crisis measures aren’t a cure all. He cast doubt over how the Greek debt write-down would be implemented and said that haircuts to Greek debt can’t be seen as a comfortable way out of Greece paying its debts.
» BOE’s Fisher said that there’s a good chance of another UK recession.
» U.S. Q3 GDP was +2.5% which was as-expected and vs. +1.3% previously.
» U.S. Initial Claims were 402K vs. 400K expected and 404K previously. Continuing claims were 3.645M vs. 3.741M previously.
Precious Metals News Stories
» iShares Gold ETF Holdings were +12,681 in Wednesday’s update.