Gold could see more long liquidation before year end

352

CORONAVIRUS IMPACT

“There seems to be a real danger that gold could see some more long liquidation before the end of the year,” says Gerhard Schubert, Head of Precious Metals, Emirates NBD

Europe:

  • The Spanish 10-year bond yield closed the week at 5.33 per cent.
  • The Italian 10-year bond yield closed the week at 4.53 per cent.
  • The European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) were downgraded by Moody’s from Aaa to Aa1.
  • The IMF awaits the result of the Greek Government bonds buyback, before committing more funds from the IMF towards the Greek bail-out.
  • The German Parliament approved the Greek Aid Deal, and it is worth noting that this is the first time that an aid approval has direct financial consequences for the German taxpayers.
  • The unemployment rate in the Eurozone rose in October 2012 to 11.7 per cent, up from 11.6 per cent in September 2012. The November inflation rate for the
  • Eurozone fell to 2.2 per cent, down from 2.5 per cent in October 2012.

US:

  • The talks between the Republicans and Democrats are gaining daily on importance in order to avoid the “Fiscal Cliff”. It appears that no real progress has been made during last week’s talks.
  • The economy grew by 2.7 per cent in the 3rd Quarter of 2012, as revised data shows.

India:

  • The Indian Rupee finished the week at 54.27 to the US dollar.

Gold: US$1715 – down US$36 from last week

Gold gave up all the gains from last week and fell back into the range of US$1700 to US$1738. There have been various attempts to explain what happened last Wednesday, the moment Comex opened, and I do want to give you my take on that event. I think this was an extremely well executed ploy in a market what looked already heavy for 2 days. The key was to sell the December contracts quickly and in an absolutely non-price sensitive fashion. The drop that followed might have even been bigger than anticipated, but it gave the seller all the time in the world to buy the February contracts at extremely attractive prices, compared with the switch rate.

References to large Put-option buying during the previous days have also been referred to and we might not find out what really happened, but it appears that this has been considered a buying opportunity.

Gold prices recovered nicely after this event and prices reached US$1730 before being sold off again on last Friday afternoon. One of the reasons given was the slow progress in the talks about the “Fiscal Cliff”, but that appears to be more of an excuse than an explanation. There seems to be a real danger that gold could see some more long liquidation before the end of the year, as liquidity and adding risks make way towards
booking profits and closing the books for the year. The immediate drivers for the gold price appear to be the progress of the talks in the US about the “Fiscal Cliff” and the developments in the European Sovereign debt crisis. It appears now that the markets have the certainty that the uncertainties will continue, until at least September 2013, the time of the German general election. Greece will most likely receive the required payments as a sort of drip-feed patient, unless real implementations of the Greek government’s decisions take place and effect.

Physical buying has been evident on Thursday and Friday and this has to be considered helpful, but the overall amount of physical buying seen, has to be described as disappointing. The premium from Gold over Platinum fell last week to US$115. The latest Commitment of Traders Report (COTR) shows an increase in long positions, accompanied by an increase in fresh short positions.

Option volatilities midrates: Gold atm (at the money)

1 month 11.50% unchanged
3 month 12.75% down 0.50%
6 month 14.75% down 0.50%
1 year 17.25% down 0.75%

Premium 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US$0.00
EFP Spot Gold to February Comex: US$1.75
ETF: Holdings are at 2740 tons
Support: 1705 and 1674 Resistance: 1750 and 1796

Silver: US$33.50 – down US$0.60 from last week

Silver prices slumped on Wednesday afternoon, in sympathy with gold and it traded quickly down to the support area of US$32.85. The recovery was nothing less than spectacular with silver reaching US$34.50 before being sold off on Friday to close for the week at US$33.50. Silver took a lot of strength from the performance of the other white precious metals and silver prices look to have found consistent buying on dips. This underlying strength gives hope for a sustained period of time at current price levels with investor interest potentially rising in this most volatile precious metal. The easiness with which silver gave up at least
US$0.60 last Friday is concerning and a lot will depend on the performance of gold prices in the remaining 4 weeks of this year.

The latest Commitment of Traders Report (COTR) shows an increase in long positions, accompanied by an increase in fresh short positions.

Option volatilities midrates: Silver atm (at the money)

1 month 21.25% up 1.00%
3 month 22.25% down 0.50%
6 month 24.00% down 1.25%
1 year 25.50% down 1.50%

EFP Spot Silver to March Comex: US$6.75 cents
ETF: Holdings are at 16100 tons
Support: 32.85 and 32.30 Resistance: 34.95 and 35.42

Platinum: US$1600 – down US$16 from last week

The discount to gold has decreased to US$115. Platinum prices fell on Wednesday briefly under the US$1600 level but the recovery was swift and the US$1600 level was recaptured. The rest of the last week was a much more subdued affair, with platinum closing the week at or just above the US$1600 level.

It appears to be that platinum prices are stabilizing on an elevated level and there have been further reports that, according to Johnson Matthey, approximately 600k ounces of platinum production were lost in South Africa during Q3 of 2012. This kind of headline news does support the underlying metal and help to put a floor under the price of platinum. However, it is very much possible to see platinum prices testing lower levels in the coming weeks, should gold not be able to hold levels of between US$1650 and US$1700 to the downside.

The latest Commitment of Traders Report (COTR) shows an increase in long positions, accompanied by an increase in fresh short positions.

Option volatilities midrates: Platinum atm (at the money)

1 month 17.00% down 0.75%
3 month 19.00% down 1.00%
6 month 21.00% unchanged
1 year 22.50% unchanged
EFP Spot Platinum loco London to January NYMEX: US$1.00
ETF: Holdings are at 50 tons.
Support: 1570 and 1545 Resistance: 1630 and 1657

Palladium: US$681 – up US$18 from last week

Palladium has proven to be the best performing precious metal during the month of November. Excellent performance was based very much on fundamental strength, whereby this doesn’t always count for anything. However, industrial re-stocking and better car sale numbers from China are injecting some more confidence into the palladium market and in the longevity of the upward move. Palladium struggled last Wednesday when gold got hammered, but recovered in style and closed the week close to the highs. ETF holdings are also stable with some small additions over the course of the last week and the speculative long positions on NYMEX are not in overbought territory, by any means. The danger to the excellent performance might come from weakness in the other three precious metals, but even a setback should only be of a temporary nature.

The latest Commitment of Traders Report (COTR) shows an increase in long positions, while more covering of short positions have been prominent.

Option volatilities midrates: Palladium atm (at the money)

1 month 25.50% unchanged
3 month 26.00% unchanged
6 month 26.50% unchanged
1 year 27.00% unchanged

EFP Spot Palladium loco Zurich to February NYMEX: US$0.75
ETF: Holdings are at 61 tons
Support: 633 and 617 Resistance: 700 and 718

*Precious Metals Report dated December 1, 2012 by Gerhard Schubert, Head of Precious Metals, Emirates NBD

Resources for gold investors:

LEAVE A REPLY

Please enter your comment!
Please enter your name here