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Confidence in the Eurozone leads to liquidation in gold positions


Notable events from the past trading week:

– The Spanish 10-year bond yield closed the week at 5.37 per cent.
– The Italian 10-year bond yield closed the week at 4.56 per cent.
– The Eurozone countries have reached an agreement on Banking Supervision. It is envisaged that the European Central Bank (ECB) will be operationally ready to fulfil this function by the 1st of March 2014. The ECB is expected to oversee directly 150-200 European banks from the outset.
– Greece has received last Friday, 14th December 2012, a payment of 49.1 billion Euros.
– The Bond buyback from the Greek government was widely regarded as a success, as 30 billion Euro worth of Bonds were purchased for 10 billion Euros. The Greek sovereign debt fell therefore by 20 billion Euros, and that was a pre-condition for the release of the bail-out tranche of 49.1 billion Euros.

– The Purchasing Managers Index (PMI) reading for December showed a rise to 50.9 against a reading of 50.5 in November 2012, according to HSBC.

– The PMI flash reading for December was released as 54.2, compared with a November final reading of 52.8
– The Consumer Price Index (CPI) for November fell by 0.3 per cent, against a median expectation of minus 0.2 per cent and a rise in the final October figure of 0.1 per cent.
– The Industrial Production rose in November by 1.1 per cent, compared with a fall of 0.7 per cent in the revised figure for October 2012.
– The meeting of the Federal Open Market Committee (FOMC) brought the expected announcements. The Federal Reserve Bank (FED) will buy US$45 billion of Treasuries Securities each month, beginning in January 2013, after the Operation Twist has formally ended. The surprise was, that the rate guidance date has been neutralised by the FED. An unemployment rate of 6.5 per cent and an inflation target of 2.5 per cent were mentioned instead, but these numbers do not constitute an immediate trigger to stop the asset purchases, if these figures are not viewed by the FOMC as sustainable.

– Japan elects on Sunday, 16th December, a new government and the leader of the opposition, Mr. Shinzo Abe, is expected to win the ballot. It is expected, by the markets, that further strong stimulus programmes and initiatives will be released, if Mr. Abe should be successful in the election.

– The Indian Rupee finished the week at 54.49 to the US dollar.
– The November wholesale price index rose by 7.24 per cent, compared with a rise of 7.45 per cent in October 2012. Both figures are to be compared with the respective figures one year ago, and that shows inflation is actually easing, against the median forecast of rising inflation from analysts.

Gold: US$1695 – down US$9 from last week

Gold disappointed during last week’s trading. The announcement of the result from the meeting were initially viewed as positive and Gold rallied briefly (very briefly) to the week’s high of US$1722. What followed was more profit taking and long liquidation. The technical picture has turned a little negative later in the week, but gold is still holding the support levels of US$1685 and US$1670.

Gold has failed to regain the US$1700 level, even though some support could have been expected as the Euro strengthened against the US dollar above the 1.3150 level. Gold in Euro terms is trading down to the Euro level 1287 per ounce and that might be explained by the progress made by the European leaders at their summit last Friday. It appears that a little bit more confidence into the Eurozone is leading to liquidation from Euro/Gold holders, as confidence in the results from the summit grows.

The liquidity, or better dwindling liquidity, in the day-to-day trading until the end of the year make behaviour of the price movements even more difficult to project than usual. The fact that gold will be bought during the 5th and 9th business day of the year for re-balancing purposes of the indexes is very much public knowledge, but this might provide some support between now and the end of the year.

The problem is always that markets never do what you might expect, if everybody knows about the re-balancing. There might be a big chance that the professional trade might go long into these trading session in the hope of a quick profit. I hope that not too many people want to go at the same time through this small door. The premium from Gold over Platinum fell last week to US$80.

The latest Commitment of Traders Report (COTR) shows an increase in fresh long positions (pre-FOMC meeting), accompanied by a small increase in fresh short positions (End of business 11th December).

Option volatilities midrates: Gold atm (at the money)
1 month 10.50% down 0.80%
3 month 12.30% down 0.20%
6 month 14.25% unchanged
1 year 17.00% unchanged
Premium 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: Minus US$0.00
EFP Spot Gold to February Comex: US$1.06
ETF: Holdings are at 2741 tons
Support: 1685 and 1670
Resistance: 1737 and 1750

Silver: US$32.23 – down US$0.84 from last week

Silver traded range bound for most of last week, until a sizeable sell-order for 10 million ounces was executed last Friday morning, during Asian trading hours, and that pierced the support level at US$32.50.

The US$32.50 was recouped during the early European trading hours, but that level could not be sustained during the American time zone, and Silver closed the week at US$32.20.

Silver looks technically vulnerable, but the trading activities will be most likely driven by less and less liquid trading conditions. That could create erratic and significant price movements either way. These conditions should be taken into consideration and caution might be advisable.

The latest Commitment of Traders Report (COTR) shows a decrease in long positions, accompanied by a decrease in fresh short positions. (End of business 11th December)
Option volatilities midrates: Silver atm (at the money)
1 month 21.50% up 1.00%
3 month 22.50% up 0.50%
6 month 24.00% unchanged
1 year 25.50% unchanged

EFP Spot Silver to March Comex: US$5.75 cents
ETF: Holdings are at 16135 tons
Support: 31.85 and 31.28
Resistance: 33.50 and 34.95

Platinum: US$1614 – up US$10 from last week

The discount to gold has decreased to US$80. Platinum had a good week and traded up to the resistance area at US$1635. Profit taking and some long liquidation were dominant in the second half of the week, but the US$1600 appeared to be well supported.

The discount to gold has recently been eroded week on week. A return to a premium scenario compared with gold might be on the cards during the early parts of 2013, if the economic data from the US and China continue to show strengthening.

The latest European car sales numbers (down 7.6 per cent on 19 year lows) are not helping but are of lesser importance in the current focus. Growth in Europe is not expected to return until 2014, at the earliest, and these expectations are already included in the expected demand figures for Platinum.

Any surprise could therefore only be of a positive nature, unless the US government cannot agree on an avoidance of the “Fiscal Cliff”. All bets would be off in that scenario.

The latest Commitment of Traders Report (COTR) shows an increase in long positions, accompanied by a decrease in fresh short positions. (End of business 11th December)
Option volatilities midrates: Platinum atm (at the money)
1 month 16.00% down 0.50%
3 month 17.50% down 0.50%
6 month 18.50% down 0.50%
1 year 20.00% down 0.50%

EFP Spot Platinum loco London to January NYMEX: US$0.50
ETF: Holdings are at 50 tons. Support: 1585 and 1570 Resistance: 1637 and 1657

Palladium: US$700 – up US$4 from last week

Palladium has again performed well and closed again just under the US$700 level. Some profit taking was visible during the earlier part of the week, but some strong buying on dips helped to recoup these intra-week price drops.

The support level at US$675 was never strongly tested and the strong fundamental outlook might still persuade some investors to get involved during the remaining period of 2012. The latest Commitment of Traders Report (COTR) shows an increase in fresh long positions (pre-FOMC meeting), accompanied by a small increase in fresh short positions (End of business 11th December).

Option volatilities midrates: Palladium atm (at the money)
1 month 24.50% up 1.25%
3 month 25.50% up 1.25%
6 month 26.00% up 1.00%
1 year 26.50% up 0.25%
EFP Spot Palladium loco London to February NYMEX: US$0.50
ETF: Holdings are at 62 tons Support: 675 and 650 Resistance: 707 and 718

*Precious Metals Report for December 15, 2012 by Gerhard Schubert, Head of Precious Metals at Emirates NBD.



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