Gold, silver await direction signals from major events

  • China National Gold company considers taking a stake in African Barrick.
  • Europe: The trade surplus of the Eurozone members reached a new high in June 2012 with a surplus of Euros 14.9 billion recorded, up from 200 million a year ago.
  • US: The US is considering a release of some oil from their strategic reserves.
  • US: The University of Michigan Index recorded an increase in US consumer sentiment. The number increased from 72.3 to 73.6.
  • The Indian rupee finished the week at 55.74 to the dollar.


US$ 1615.50 – down US$ 4.50 from last week.

Gold finished the week back above the US$ 1600 level. It appears that the gold market is currently in the strong grip of the option market participants. Gold did spent the early part of last week moving up to the US$ 1626 level before plunging again to the US$ 1590 level. The market looked, as always, very good near the top and looked equally bad, close to the lows. The option Greeks provided the resistance supply and also the buying support during the week. It is questionable if last week`s trading range can be repeated as there are more significant events coming our way, which can easily be described as the end of the summer lull.

The gold price in Euro is still an important measure and the upcoming events, like the meeting in Jackson Hole, the release of the “Troika” report and the decision of the German constitutional court on September 12, 2012 need to be monitored closely. There are also reports about increased tensions in the Middle East, with the relations between Israel and Iran taking centre stage.

Physical buying has increased without the increase being substantial. However, the premium/discount situation of physical gold in Dubai against loco London has improved, and is now trading at flat. The well documented significantly increased gold holdings of some prominent members of the investment community (Paulson and Soros) through ETF`s can also lend some support at the current levels. The latest release of the World Gold Council shows a slowdown in worldwide demand of 7.1 per cent, while Central Bank buying is expected to increase in 2012 towards 500 tons. This should help to support the gold price below the US$ 1600 level.

The Commitment of Traders Report (COTR) shows that there has been a small reduction of long positions recorded, while the short positions have increased.

Option volatilities midrates: Gold atm (at the money)

1 month 13.25% down 0.50%

3 month 16.50% unchanged

6 month 19.00% unchanged

1 year 22.00% unchanged

Discount 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US $ 0.00

EFP Spot Gold to December Comex: US$ 1.95

ETF: Holdings are at 2537 tons

Support: 1588 and 1550 Resistance: 1632 and 1647


US$ 28.06 – down US$ 0.04 from last week.

 Silver finished the week nearly unchanged and that’s probably the best what can be said about last week’s price action. Silver followed largely the lead given from the price action in gold and was not able to show any gains from the strong upward move in the Platinum Group metals. Holdings in Silver ETF`s are holding very well on elevated levels and this does reflect a growing sense of bottoming expectation from the investment community. Silver, being the “King of volatility” in the precious metals world, could be the main benefactor from an improved outlook in the later stages of this year.

The technical resistance at US$ 28.35 is noteworthy, but the real test would be a test of the strong resistance of the US$ 29.08 level.

The COTR report shows that a very small amount of fresh long positions have been recorded, while some equally small amount of short positions has been covered.

Option volatilities midrates: Silver atm (at the money)

1 month 24.00% down 0.50%

3 month 27.50% down 1.50%

6 month 30.50% down 0.50%

1 year 33.50% down 0.50%

EFP Spot Silver to September Comex: US$ minus 7.00 cents

ETF: Holdings are at 15475 tons

Support : 27.70 and 26.80 Resistance : 28.40 and 29.10


US$ 1466 – up US$ 72 from last week.

The discount to gold has decreased to US$ 150 after the tragic events in South Africa. The situation in South Africa became headline news in the later part of last week and an official inquiry has been initiated by the President Jacob Zuma.The participants of the market have reacted to these events with massive short covering purchases. It also appears that there are conflicting views about the surplus or deficit situation of platinum around. Some analysts reckon that the losses of production at Impala, earlier in the year, coupled with the situation at Lonmin leads to a deficit for the current year, whilst others are still maintaining their view of surplus material for 2012. However, there is broad agreement that the platinum market is expected to have surplus material available in 2013, as any kind of production cut appears to be politically impossible to administer.

The Commitment of Traders Report (COTR) show a small increase in both, long and short positions, but the report is based on close of business from last Tuesday, August 14, 2012. The whole situation has significantly changed since then and next weeks report will reflect the changes to the tragic events.

Option volatilities midrates: Platinum atm (at the money)

1 month 20.00% up 3.00%

3 month 22.00% up 3.00%

6 month 23.00% up 2.50%

1 year 24.00% up 1.00%

EFP Spot Platinum loco Zurich to October NYMEX: US$ 0.00

ETF: Holdings are at 46 tons.

Support: 1380 and 1350 Resistance: 1478 and 1494


US$ 603 – up US$ 24 from last week.

Palladium reacted to the events in the platinum market with some strong buying on last Friday and palladium finished the week with significant gains. It is by no means clear that these gains can be confirmed next week, but the technical picture has improved as a result of last week`s price action. A shift of the trading range for palladium above the US$ 600 level would be very welcome by the market, but the overall outlook for the world economy has not improved at all. There are still major economic challenges out there, with Europe, the US, China and India all experiencing a slowdown at best. Brazil has embarked on a stimulus program but this does ultimately only amplifies the challenges for the world economy.

The Commitment of Traders Report (COTR) shows a very small increase of short positions, while there was no change of long positions recorded. Again, this report was based on open positions on the close of last Tuesday.

Option volatilities midrates: Palladium atm (at the money)

1 month 21.50% up 1.50%

3 month 24.50% up 2.50%

6 month 26.00% up 1.50%

1 year 28.00% up 0.50%

EFP Spot Palladium loco Zurich to September NYMEX: US$ minus 1.25

ETF: Holdings are at 62 tons

Support: 582 and 565 Resistance: 612 and 628


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