Gold And Silver Prices Lose Steam

With a slightly higher dollar, gold prices are feeling the pressure and losing ground. Comex Gold prices hit a fresh four-week low & bottomed at $1729.7 closing around $1737.6 yesterday.

The US Dollar Index was firmer on some short covering and some perceived safe-haven buying and Crude Oil prices were slightly lower. MCX Gold prices slumped to Rs. 30956/10 gms yesterday and have declined further today to Rs. 30862 on the back of a strengthening Indian rupee. For the week ended October 9, speculators in CFTC - the Commodity Futures Trading Commission’s weekly commitment of traders report bumped up their net-long positions in the Precious Metals.

The downside break in gold prices may give traders and investors the much needed re-entry in long positions after having booked gains close to $1800 in gold futures. The net-long positions in gold futures remain heavy. Gold ETF holdings are still at record highs and speculative positions at their highest since August 2011. While speculators are adding to their bullish positions in Gold, the momentum behind the gains are beginning to slow. China’s consumer inflation came in a bit lower than expected in the latest batch of Chinese economic data.

That prompted speculation among traders that China’s central bank may have more leeway in further easing monetary policy. China’s trade surplus also grew in September, which suggests domestic demand in China is on the upswing. However, the weekend China data also showed bank lending growth weaker than expected in September.

On the European Union sovereign debt front it’s Greece’s turn to be in the spotlight this week, as EU officials cannot seem to agree on how or when to provide the next tranche of bailout funds to the financially troubled country. The willingness of the European Central Bank to buy bonds of troubled nations is the key for the euro to rise eventually, when the time comes. Downside in the euro remains limited.

The focus for the EUR this week remains on this week’s EU Summit being held on Thursday through Friday. Traders tend to monitor foreign-exchange moves since they can impact base and precious metals alike. With the INR strengthening, Gold has found handsome support from a pick-up in buying in India in the weeks preceding the key festival of Diwali.

Gold and Silver Tech Specs:
Much of the current weakness in gold futures appears to be only technical in nature. Some traders are exiting positions on disappointment that gold has not able to break above $1,800, particularly after a chart reversal on October 5 when the monthly U.S. jobs report was released. But for the long-term, nothing has changed drastically, except maybe a lack of conviction on failing to cross the $1800 level.

Technically speaking, gold and silver are both near their short-term bottom and could take an upswing. Gold has a reasonable support near the minor congestion area of $1720 – $1726.3 range whereas silver has support in the $32.05 to 32.41 ranges.

This range can provide near-term buying interest. On a remote possibility of longs liquidation occurring on the current gold prices softening, if gold slips below $1720, then gold prices may lose the upside advantage and could be seen hurtling towards $1666. Silver, though seems more sustainable on the upside levels, could lose steam if closes below $32 and then could slump to $30.25 also.

There is the minor risk of more weakness if support levels in gold and silver do not hold. Gold Holdings by exchange-traded products are higher so far in October. Gold ETF holdings continue to flourish with inflows of 10.1 (metric) tons over the past week, taking flows for the month to date to over 30 tons. Inflows for the year to date have now reached 224 tons, surpassing the full year last year (175 tons) but still below y/y flows for 2010 (361 tons). Gold buying of 1.33 million ounces so far in October by Gold ETFs is about 52% of the September inflows. A potential upside catalyst occurs later this week when leaders gather for a European Union summit.

Copper and Base Metals seem to have Bottomed-Out:
Copper and Crude Oil too seem to have hit near term bottoms & could turn & rise. Fundamentally speaking, most commodities should be taking an upside swing from hereon. Copper Futures Trading volume has been below average so far in October & can be expected to pick up only from next week onward after the LME week is over by this weekend. Chinese imports of copper rose in September. Base Metal imports in September were already relatively strong and proved a positive surprise. Copper imports climbed by 11% from the prior month to 394,837 metric tons. In the first nine months of the year, China thus imported around 3.6 million tons of copper products, 32.6% more than in the same period last year. China’s iron ore shipments rose 4.1% in September to 65.01 million tons, the highest level since January 2011. Fears in the Base Metals complex about Chinese economic growth may be heavily exaggerated. China is a key consumer of industrial commodities & the demand will rise as it develops its infrastructure further.

Since inflation dropped year-on-year to just 1.9% at the same time, reaching its second-lowest figure since January 2010, the government and central bank have more scope to launch new stimulus measures. A growing number of copper traders lately appear to be selling into rallies rather than buying on dips, as worries about the macroeconomic picture upset the bulls. Base Metals have reversed almost all gains seen after the announcement of the Fed’s QE3.

An upside pace in Agro commodities seen for the past few days if joined by Base Metals and Crude Oil may trigger fresh up moves in gold and silver also. The relative out performance of copper makes it our favored metal and top pick for fresh bullish moves and this in turn will provide for the much needed push in Silver also. The International Copper Study Group also shows a seasonally adjusted year-to-date supply deficit of nearly 300,000 metric tons. Overall the picture remains hazy and generally directionless until the crucial US Presidential Elections. Things seem to be taken care of conveniently, so that nothing major rocks the boat…

Crisis hit Greece resorts to Gold Mining to spur Investment & Cut Debt:
Crisis hit Greece is is set to become Europe’s largest Gold producer within four years as gold mining is gathering momentum after it began what it called a “fast-track” approvals program. Analysts said regulators in Athens sign off on mines kept on hold for more than a decade by red tape and environmental rules.

Gold is currently the only metal targeted for fast-track approvals. They said Greece is virtually unexplored because of the political situation that prevailed before the crisis. Modern exploration techniques have not been used in Greece at all. The environment ministry has speeded the issue of permits. Greece is seeking 50 billion euros by 2020 selling state stakes in companies and real estate to meet the conditions of its bailout and cut debt. The two leading miners presently operating in the country Eldorado Gold and Glory Resources are developing four mines that should turn Greece into Europe’s biggest producer of the precious metal by 2016.

Eldorado is developing European Goldfields’ Skouries and Olympias mines and the Perama Hill project that it already owned. The three sites will produce about 345,000 ounces by 2016, while Glory estimates its Sapes mine will have output of about 80,000 ounces a year. Greece will account for about 21% of Eldorado’s 2016 gold production of about 1.7 million ounces; Eldorado says it will pay a tax rate of 20% in Greece, where there is presently no royalty in place.

Spain- More Pain will give more Gain:
S & P cut its credit ratings on Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders, along with nine other banks after lowering the country’s sovereign rating. The ratings company lowered Santander’s long-term counter party credit rating two levels to BBB with a negative outlook, from A-, S&P said in a statement today. Spanish Prime Minister Mariano Rajoy’s equivocation on seeking a European bailout amounts to a bet that another bout of market turmoil will enable him to broker better terms over German resistance.

In Rajoy’s thinking, “the worse it gets, the better for Spain,” said Jose Garcia-Montalvo, a former Harvard University economist who teaches at Pompeu Fabra University in Barcelona. “That would make the Germans think more deeply about the cost of letting the southern countries sink. But it’s a very risky strategy,” reported Bloomberg. Heading into a European Union summit in two days, Rajoy has brushed off pressure to reach for a lifeline.

Defending Spain’s crucial because its economy doubles the output of Greece, Ireland, Portugal and Cyprus combined, testing the capacity of aid mechanisms. Stalling has been a tactic Rajoy has used with limited success. His People’s Party lost the regional election in Andalucia in March even after he delayed announcing unpopular measures until after the vote. Rajoy and the PP, who contest regional elections in Galicia and the Basque country on October 21, may again seek to benefit from deferring or even dodging the stigma of a bailout.

The history of financial crises also suggests Spain may benefit from delay, according to Edwin Truman, a former U.S. official who monitored the Latin American crisis of the 1980′s and the Asian meltdown of 1997-98 from the Federal Reserve. Countries requesting aid later in a crisis may win easier conditions because their needs are in part caused by spillover effects, he said. Should Rajoy make it through the end of the year, a deepening recession, the prospect of elections in Italy, or even a Greek exit from the euro could change the political dynamic, bolstering Spain’s negotiating position.