NYSEbullionweekly220811

8/4/2019 NYSEbullionweekly220811

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dfResearched and Analysed by E-Mail: [email protected]

22nd August 2011

Last Week: Gold started in orderly fashion on Monday in two-way trading following the previous weeks volatile price flows but

buying interest returned during US trading after data showed a decline in manufacturing activity in the New Yorkarea and weak demand from foreign investors for US long-term assets.

The metal tested back to $1,770 per ounce in after-market trade, bolstered by intervention by the Swiss NationalBank to halt the appreciation of the franc, and continued to gain ground on Tuesday. It touched $1,788 after moredisappointing data (eurozone flash GDP and US housing) and a negative reaction to the meeting between French

President Nicholas Sarkozy and German Chancellor Angela Merkel. Although that summit resulted in a proposedtax on financial transactions and closer joint governance of economic policy, no agreement was reached onincreasing the eurozone bailout fund or the selling of eurozone bonds.

News on Wednesday that Venezuela was planning to nationalise its gold industry and rehouse its official holdingswithin its own central bank kept gold underpinned before it cleared $1,800 on Thursday and continued to freshhighs after data revealed a dramatic drop in the Philly Fed Manufacturing Index to -30.7 from 3.2 and a slowdownin existing home sales.

Economic jitters pushed gold to a record $1,878.75 during Friday's European trading before paring gains to closethe week up 6.3 percent around $1,850. Silver finished the week with a nine-percent gain, having hit a three-month peak of $42.95 per ounce during electronic trading late on Friday.

Monday marked the 40th anniversary of President Richard Nixon's announcement that the US would abandon thegold standard, dropping the $35-per-ounce peg and allowing the dollar to float freely.

Gold hit new lifetime highs in other currency denominations last week including the euro, sterling, the Canadiandollar, the Swiss franc and the rupee.

SPDR ETF gold holdings rose 30.5 tonnes last week. Retail interest remained brisk, with the US Mint reportingEagle sales totalling 83,000 ounces of gold and 2.13 million ounces of silver in the month to date.

The Week in Numbers NYSE Liffe US

Gold Oct Mon 15 Tue 16 Wed 17 Thu 18 Fri 19 Week*

High 1745.70 1785.50 1794.60 1828.00 1876.20 1876.20

Low 1736.30 1760.60 1783.70 1794.30 1830.00 1736.30

Close 1757.10 1783.60 1792.50 1820.40 1850.50 109.30

Silver Sep

High 39.690 40.091 40.580 40.789 42.519 42.519

Low 38.884 39.325 39.800 40.120 41.245 38.884Close 39.363 39.837 40.351 40.684 42.391 3.277

* week's high, week's low & change on week

Week Ahead:

The Federal Reserve signalled at last years Jackson Hole symposiumthat it was considering the second phase of quantitative easing (QE2),which started a strong run-up in asset prices. That set a precedent the

market expects chairman Ben Bernanke to lay out a range of policies atthis weeks symposium intended to bolster the ailing US economy.

Prior to Bernankes speech on Friday, the market will get furtherinsight into the state of the global economy via various economic data(see table on right). With growth forecasts for many advanced nationsbeing lowered, this data could have a serious impact on markets.

Bullion will be driven by three factors this week: economic data,

EU debt developments and Bernankes Jackson Hole speech. Negativedata could well be supportive for gold in the run-up to Friday. Bullioncould correct if Bernanke fails to hint at further QE but indications offurther easing could well push prices towards $2,000.

Outlook

Short Term Challenge $1,900-2,000

Medium Term Consolidate $1,780-1,820

Long Term Extend gains Above $2,000

Bullish Bearish More talk of QE3 Build-up of shorts in gold Lack of action to tackle debt Equities weak, possible dash for cash Dollar looking weak again No QE3 announcement is made


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FOCUS Gold underpinned by fundamentals;gold/silver ratio supportive for silverThe World Gold Council published last week its latest Gold DemandTrends report for the second quarter when gold initially rallied towhat was then a record $1,575 per ounce on May 2 beforeconsolidating in a broad range between $1,475 and $1,550.

Despite the record gold price in US dollars, the report showeda five-percent quarter-on-quarter decline in total demand in volumeterms and a 17-percent year-on-year decline. But while the risingprice affected tonnage off-take in that period, demand on a dollarbasis grew to $44.5 billion, the second highest quarter on record.

Indian and Chinese growth was particular strong risingmiddle-class wealth, inflation and festival purchases prompted buying interest. Jewellery-related purchases rose 17percent year on year in both countries while coin and bar sales increased 44 percent in China and 78 percent in Indiadespite local prices rising four percent and five percent respectively.

Supplies into the market also declined year on year although there was a sharp 20-percent quarter-on-quarterrise when the new highs in gold triggered an influx of scrap sales. Recycled flows were up 22 percent in addition toprimary production but this was partially offset by approximately 10 tonnes of producer-related buying for dehedgingafter being net hedgers during the first quarter. Purchases from various central banks also resulted in a net 69.4-tonne rise in officials holdings, a slower pace compared with the 122.9 tonnes added between January and March.

The second-quarter data and more recent statistics describe a bullish price environment for gold, with themarket driven by strong investment demand that is outpacing moderate supply increases.

Gold has rallied strongly in recent weeks while equities have soured on growing growth concerns but theaccompanying chart highlights some interesting developments between two industrial commodities silver and oil.

The rise in the gold/oil ratio reflects lower demand expectations while US and eurozone debt problems undermineeconomic activity; meanwhile, despite its industrial demand base, silver has been keeping pace with gold while retailinvestors seek the metal as a cheaper alternative. The silver/gold ratio, having dipped below 44:1, could test thebottom of the previous 1:39-42 range, suggesting a rally back towards $47 per ounce.

Technical Analysis GoldGold closed bullishly last week for the seventh consecutiveweek, raising the short-term prospects of a reversal.

The momentum indicators are positive but both appearvulnerable to rolling over. The metal has support from the 5WMA and the 20 WMA. It closed well over the top of theBollinger bands for a second week last week, indicating themetal is technically overbought.

Silver is well supported by the small up channel at$1,781-1,704 and the long-term up channel at $1,698-1,615. Upside resistance remains at the psychologicallyimportant levels of $1,900-$1,925-$1,950-$2,000.

In the short term, we feel that silver is overbought butsuch scenarios can become very overstretched in genuinebull markets. So while we believe a correction is overdue, wewill remain positive in the short term until the stochasticscross and break lower. We are bullish in the medium-to-longterm.

Technical Analysis SilverSilver closed positively last week, forming it largest greencandle since the week of April 18. The metal has retracedlower so far this week and is now trying to consolidate

around the 61.8% Fibo level at $43.13. The stochastics arepositive but look vulnerable and the RSI is neutral positive.

Silver has support at $42.27-$41.45-$41.07 (50%),$40.89 and resistance at $44.62-$45.52 (UTL). Given lastweeks gains, it is understandable that silver is consolidatingon last weeks close but the fact it has gapped higher andhad to retrace lower suggests a lack of follow-throughbuying.

While silver is still trading inside the long term bullishup channel of $45.52-38.12, we remain positive in themedium-to-long term. In the short term, however, wewonder whether silver might consolidate or correct slightlylower before resuming its upward path.

Trader Talk:What I'm seeing right now is basically a crisis of confidence, more so than an economic crisis or financial crisis necessarily

at this stage" Natalie Trunow, chief investment officer of equities at Calvert Investment Management


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Market Drivers

Conclusion As the Trader Talk quote above suggests, the market may be having a crisis of confidence. It seemsneither central bankers nor politicians have answers to the debt problems or for career/party political reasons do notwant to take them. This raises the question: how will this debacle end? Will governments inflate and debase their wayout of the problem, will they default or will they come up with a way to grow their way out of the debt spiral?

Last weeks poor economic data has sparked more talk of QE3. Since that would be a soft default it debasesthe dollar by printing more money gold's continued rise and the dollar's retreat close to the bottom of its recenttrading range come as no surprise.

If QE3 is announced, we would expect more dollar weakness and stronger bullion prices but it may be too earlyto expect the Fed to announce QE3. There is a risk that the market may be disappointed if no QE3 is unveiled at thisweeks Jackson Hole symposium, which could lead to a pullback in bullion prices.

The symposium does not wind up until next weekend so there may be room for bullion prices to run higher thisweek. But judging by gold's over-performance relative to silver in recent weeks and with some signs that the fundsare getting nervous of golds rapid ascent, money may move back into silver rather than push gold higher still. This is

especially so should the powers that be manage to stabilise market confidence again, which could boost the outlookfor industrial metals once more, giving silver the edge over gold.

Gold & Silver ETFs

ETF investors started to take profits two weeksago but last week they bought afresh. Holdingsacross the gold ETFs we follow climbed 25.8tonnes and holdings in the silver ETFs climbed16 tonnes, having dropped 324 tonnes in theprevious week. As the chart shows, there is

ample opportunity for a return of strong buyingof silver if investors have the nerve to re-enterthe volatile market.

Dollar Index

This weekly chart shows the dollar holding in asideways range just above the recent lows. Soalthough the dollar is not losing value at

present, it is not showing any signs of gainingvalue. This suggests that the market is waitingto see whether the US embarks on anotherround of policy that will ultimately debase thecurrency further, i.e. will another tranche ofquantitative easing (QE3) follow?

Gold : Silver ratio

The run-up in gold prices had left silver behind,raising the gold/silver ratio. But we thought itunlikely that silver would be left behind if goldcontinued to rise. So silver seems to beembarking on a game of catch-up once again.The gap higher in silver on Monday bodes welland, with QE3 in the air, the ratio may fallfurther.

Funds

Despite another rebound in gold prices lastweek, the net long fund position on gold fell3,487 contracts as new shorts outweighed newlongs. This suggests the market is gettingnervous about the extent of the gains. In silver,more longs entered the market, while shortscovered. Perhaps the unease in gold will see

some rotation from gold to silver.


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NYSEbullionweekly220811

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