Phoenix’s Grady: $1,155/Oz Would Be Key Level For Gol

Market Nugget: Phoenix’s Grady: $1,155/Oz Would Be Key Level For Gold

Friday June 28, 2013 12:10 PM

The area around $1,155 an ounce would be a key level for gold, says Kevin Grady, president of Phoenix Futures and Options on the Comex floor. This is right around an area where analysts figure many gold producers might be losing money on their output, plus is the 68.2% Fibonacci retracement of the move from the 2008 low to the 2011 record high, Grady points out. “The mining story is an interesting one,” he says. Not only is there potential for production shutdowns if prices keep falling, but should they say rally to $1,300-$1,350, producers might be under pressure to hedge some production in order to keep obtaining financing. “I think there are lot of uncomfortable conversations going on between the mines and their banks,” Grady says. The Comex August futures fell as far as $1,179.40 Friday before bouncing on short covering.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: Daily FX’s Vecchio: Gold May Face Selling On Rallies Yet Bottom Could Be Near

Friday June 28, 2013 11:25 AM

Traders may keep selling into rallies in gold, yet a near-term bottom also may not be far away, says Christopher Vecchio, analyst at DailyFX. Gold has tumbled in the second quarter. “Call it what you will, but these are liquidation-type conditions, not the hallmark of rational investing,” he says. “With that said, gold has fallen into the 10/20 daily RSI (Relative Strength Index) support region, where price has held on numerous probes lower, ultimately producing a short-term rally.” This occurred in mid-February and mid-April, he points out. “Accordingly, because the trend is still down, we look for any rallies in precious metals to be sold until sufficient technical evidence mounts to warrant a suggestion otherwise,” Vecchio says. “It is possible, however, that a near-term bottom in gold may be around the corner. Basing just below $1,200/oz shouldn’t be dismissed, as at $1,189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at $1,192.” However, he adds, “time is a factor of course, and the longer gold lingers near these key levels, the higher the probability of a break toward” the $1,000-$1,025 area.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: Barclays: FX, Gold Moves Have Offsetting Impact On Copper Mine Costs

Friday June 28, 2013 11:25 AM

Lower by-product gold prices have meant higher operating costs for copper miners so far this year, while a stronger dollar has reduced them, says Barclays. “Thus, contrary to market perceptions, the net result is that copper mine operating costs seem to have been quite sticky this year so far,” the bank says. The rising dollar has a “deflationary effect” on mining costs for firms outside of the U.S. since revenues are in dollars but costs are incurred in local currencies, the bank explains.  “We estimate that on its own, the move in FX (foreign exchange) so far this year would have reduced C1 cash copper mine operating costs at the margin (95th percentile) to $6,260 from $6,400/t,” Barclays says. But this has been offset by the decline in gold. “Gold prices have fallen 28% from their peak, and since gold is a by-product, this pushes up costs (ceterus paribus, this would have pushed costs at the 95th percentile of the curve up to $6,550/t).”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: UBS: Silver ETF Redemptions Pick Up; Light Year To Date Compared To Gold

Friday June 28, 2013 9:59 AM

Liquidation of holdings in silver exchange-traded funds picked up this week but overall remains far less than has been the case for gold so far this year, says UBS. “The resilience of silver ETF investors was put to the test over the past week,” UBS says. “After managing to hold in the face of aggressive liquidations in the gold space, silver ETFs finally succumbed to the downward pressure as QE-tapering expectations gained momentum following the recent FOMC meeting. Global holdings of silver ETFs fell by nearly 6moz this week, with outflows on Monday the largest since October 2011.” Year-to-date outflows from silver ETFs amount to 3.63 million ounces, the bank says. ”In percentage terms, though, this merely represents a decline of about 1% and sharply contrasts the 20% that has been lost in gold ETF holdings.” The better tone for silver ETFs is likely due to ideas that silver should eventually benefit from a global economic recovery, UBS adds.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: OptionsXpress: Copper Weak Amid Concerns Over Chinese Lending

Friday June 28, 2013 9:59 AM

Speculators have been “extremely negative” on the outlook for Copper prices, hurt by economic concerns that have included short-term liquidity issues in China, says optionsXpress. “The continuing recession in Europe and slowing growth prospects out of China have dampened the demand for copper, despite lower prices,” says optionsXpress. “Copper stocks in exchange warehouses have increased, with large storage builds seen on the LME (London Metal Exchange) and Shanghai exchange. This can be a sign that demand is waning and physical holders of copper are placing inventories in storage awaiting higher prices. Traders will continue to watch economic reports out of China to help gauge the country’s actual growth levels. Copper traders and commodity traders in general now have a new concern, as the Chinese interbank lending rate has been soaring, with the overnight repo rate reaching 30% last week as the nation’s banking systems is experiencing short-term liquidity issues. Although the Peoples Bank of China can and has added some liquidity to the banking system, it appears to be taking a wait-and-see attitude and is allowing interest rates to rise in the short term. This policy shift regarding short-term bank funding could spur a decrease in business investments and, in turn, lower the demand for commodities in general, and particularly copper, where China is the world’s largest consumer of the red metal.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: TDS: More Physical Gold Demand Needed To Offset ETF Redemptions

Friday June 28, 2013 8:59 AM

Physical demand for gold is occurring but continues to be over-run by an exodus out of exchange-traded funds, says TD Securities. Spot gold fell as far as $1,180.20 an ounce overnight, its weakest level since August 2010. “There is no doubt that the physical demand is out there — we are seeing regional bar premiums moving higher as buyers seek value at lower levels, but it is going to need to be way more concerted to push back the tide of seemingly endless redemptions from the ETF sector,” TDS says. “Holdings are down another 1.6 million ounces or 2.4% this week and now down over 22% this calendar year.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: TDS: Much PGM, Zinc Output Below Cash Cost Of Production

Friday June 28, 2013 8:59 AM

Gold, silver and copper are still near the top of the cash cost curve, implying that a big additional negative demand shock would need to drive prices still lower in order to force supply to adjust to the new lower expected demand, says TD Securities. “In sharp contrast, platinum, palladium and zinc prices are below the cash costs of production for a significant proportion of global supply—implying that any negative demand shock would force a price adjustment on a flatter part of the cost curve which suggests a smaller price correction,” TDS says. “A move from the say 99th percentile position on the cost curve to say the 90th percentile is typically the steepest region, which implies the greatest price response to a decline in demand. These metals are also expected to post deficits for the next several years and inventories are not as massive of a problem.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: CPM Group: PGM Weakness Likely To Be Seen As ‘Buying Opportunity’

Friday June 28, 2013 8:29 AM

CPM Group says weakness in platinum group prices that are the result of sympathy selling with gold are likely to be a buying opportunity. “Platinum and palladium have price supportive supply and demand fundamentals,” the consultancy says. “The potential for further weakness in gold prices in the short term could drag PGM prices lower. The gold market has a strong short-term influence on the prices of the entire precious metals complex, which can cause PGM prices to fall irrespective of its positive fundamentals. Any weakness in PGM prices most likely will be treated as a buying opportunity by investors, based on the upside potential in these markets.” Platinum potentially could be driven down as far toward $1,250 and palladium to $580 in the short term, CPM Group says. “Over the medium term, platinum prices could rise toward $1,800 and palladium prices could rise back to $850 or higher.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: CPM Group: Gold May Be At Or Approaching Cyclical Low

Friday June 28, 2013 8:26 AM

CPM Group says gold prices “may be at or approaching their cyclical lows” and has fallen to levels that “may make sense” for an intermediate- to long-term buy. There is potential for another leg down in the short term through August, CPM Group says. “The reason for this is the fact that investors, at least through today, have not signaled that they view prices all the way down to $1,200 to be low enough to whet their appetite for gold. Beyond that, we expect gold prices to consolidate, moving sideways perhaps between $1,350 and $1,550, through 2015, before possibly rising again.” The consultancy says it issued a “qualified buy recommendation” to clients earlier this month. One quandary for investors is whether to buy gold now, or else stocks or bonds. “Given the greater risks of losses that may exist in stocks and bonds over the next two years compared to gold, which already has lost around 28% of its peak value of September 2011, it may be that investors would see the opportunity cost of moving some more of their money into gold now rather than later as a more prudent move, as a way to provide increased portfolio diversification and protection against losses in stocks and bonds, rather than foregoing potential capital appreciation in these other assets,” CPM Group said.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nugget: Gartman: Gold ‘Egregiously, Shockingly, Violently Oversold”

Friday June 28, 2013 8:24 AM

Newsletter writer Dennis Gartman describes gold as “egregiously, shockingly, violently oversold” and says the overnight low near $1,180 an ounce “has the possibility of being an important interim low.” As a result, he says, he is exiting a position in which he was short gold and at the same time long of crude oil and equities. He cites a number of factors have hurt gold, including a stronger dollar and notion that Federal Reserve aggressive addition of reserves soon might be winding down, but says a key was the measures taken by the Indian authorities to curb gold imports due to the current-deficit account. “When India, the world’s most important buyer of gold, chooses in so many instances to stand down from buying, the market is and shall be in jeopardy,” Gartman says. However, he adds, “there comes a time when all of these fundamentals have been fully priced in.” Gold has now made its way into “the box” marking the 50%-62% retracement of the bull run from autumn of 2008 to the record high in autumn of 2011, he says.        

By Allen Sykora of Kitco News; asykora@kitco.com

 

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The Art&Science of Trading Gold
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