Regional Physical Gold Buying Stable, Weekly Outlook


Weekly news review

Europe: Consumer prices in the Eurozone rose by 2.7 per cent in September, against a 2.6 per cent increase in August.

France: President Francois Hollande introduced a new top tax of 75 per cent for earnings above Euro 1 million a year.

China: The HSBC Purchasing Managers Index (PMI) shows that the Chinese economy continues to shrink. The reading for September was 47.9 compared with 47.6 in August. All numbers under 50 indicate a shrinking of the economy.

US: Consumer spending rose by 0.5 per cent in August, while retail sales were up by 0.9 per cent in the same month.

Business activity fell to 49.7 in September, down from 53 in August. This represents the first fall of business activity in three years.

India: The Indian Rupee finished the week at 52.86 to the US dollar.

*Recommended reading: 

Gold – US$1772.00 – unchanged from last week.

The gold market consolidated over the course of last week, as prices traded within a US$50 range, between US$1737 and US$1787. Gold in Euro terms reached new highs last week, while the on-going uncertainties in the Eurozone make a continuation of this trend more likely.

The positions being held in Exchange-Traded Funds (ETFs) have reached new highs, but the attempt to sell off gold below the US$1740 level failed miserably. Investors, including institutional participants, are continuing to use setbacks as buying opportunities. The market has received more indications about continuing – perhaps even increasing – purchases by Central Banks, and that seem to mop up all short-term liquidation from profit-taking investors.

The illegal strikes in South Africa’s (SA) mining industry are continuing to spread and the situation has to be carefully monitored. The importance of the South African gold industry is by no means as significant as it was in the 1980’s or 1990’s, but the country is among the five largest gold producers in the world.

Physical buying in the region has been good, due to renewed fresh buying from the Indian subcontinent, as the Indian Rupee has continued to strengthen against the US dollar. The discount of gold for loco Dubai against delivery loco London has therefore disappeared.

The premium from Gold over Platinum fell last week to US$115. The latest Commitment of Traders (COTR) Report shows that there has been a further build-up of new long positions, while more short positions have been covered. The COTR report is based on positions at the close of last Tuesday (September 25). The long positions have reached overbought territory. However, the Relative Strength Index (RSI) for Gold has gone down to 67.3, which indicates a friendly but more normal positioning environment.

Option volatilities midrates: Gold atm (at the money)
1 month 15.30% down 0.70%
3 month 16.60% down 0.70%
6 month 18.20% down 0.80%
1 year 20.70% down 0.80%
Discount 1kg Gold bars loco Dubai (DGD 995 fine) against loco London:US$0.00
EFP Spot Gold to December Comex: US$2.23
ETF: Holdings are at 2648 tons
Support: 1734 and 1704 Resistance: 1790 and 1830

Silver US$34.50 – unchanged from last week.

Silver is holding well and consolidates on an elevated level. Silver will become the main benefactor, if gold could muster a sustainable move to the upside. The market has tried levels above US$35, but could not sustain the rally yet. However, Silver could make fresh attempts to overcome the major resistance level, currently at US$37.50, if gold would also be able to continue its move higher.

A gold-led charge would make silver the main benefactor, as the increase in volatility would also mean a much stronger leverage in percentage gains compared to gold.
The COTR report shows that new long positions have been recorded, while short positions have also seen small increases. (End of business Tuesday, September 25).
Option volatilities midrates: Silver atm (at the money)
1 month 27.50% down 2.00%
3 month 28.50% down 1.50%
6 month 30.00% down 1.50%
1 year 32.00% down 1.50%
EFP Spot Silver to December Comex: US$4.25 cents
ETF: Holdings are at 15902 tons
Support: 33.60 and 32.50 Resistance: 35.60 and 37.50

Platinum US$1657 – up US$18 from last week.

The discount to gold has decreased to US$115. Platinum prices had a good week with headline news trading out of South Africa continuing to flow. Platinum prices held very well when the US$1610 level was tested, in sympathy with gold falling back towards US$1737, earlier in the week.

The level of speculative longs, according to the COTR’s report is urging caution, but this market will continue to be driven by news and not fundamentals, at least in the short term. It is clear that the current price levels are offering mining companies a sustainable level of income, but this will not address the likely continuing over production for 2013 and beyond.

The COTR shows a further increase in new long positions, while short positions have continued to being reduced (End of business Tuesday, September 25).

Option volatilities midrates: Platinum atm (at the money)
1 month 21.50% down 0.50%
3 month 22.00% down 1.00%
6 month 22.75% down 1.75%
1 year 24.00% down 1.25%
EFP Spot Platinum loco Zurich to January NYMEX: US$4.25
ETF: Holdings are at 50 tons
Support: 1590 and 1553 Resistance: 1710 and 1740

Palladium – US$635 – down US$35 from last week.

Palladium gave US$35 back to the market, as the market seemed to return to fundamentals, at least for palladium, as
platinum is driven by headline news. The downside risks for palladium seem to be nominal, as the technical support between US$618 and US$600 appears to be quite strong. There have been no positive news from the global economy readings and a consolidation between US$600 and US$690 seems to be the most likely outcome in the current situation.

The longer term expectations for palladium are still very much on the friendly side. The COTR shows a small increase of long positions, while a small amount of new short positions have been recorded (End of business Tuesday, September 25).

Option volatilities midrates: Palladium atm (at the money)
1 month 23.25% down 0.75%
3 month 25.00% up 1.00%
6 month 25.50% up 0.50%
1 year 27.00% up 0.50%
EFP Spot Palladium loco Zurich to December NYMEX: US$0.20
ETF: Holdings are at 62 tons
Support: 618 and 605 Resistance: 690 and 705

Note: This is the Precious Metals Report for September 29, 2012 by Gerhard Schubert, Head of Precious Metals at Emirates NBD.


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