Precious metals remain choppy in thin holiday markets

James Moore - Analyst, james.moore@thebulliondesk.com
Friday, Jul 04, 2008

London, 04 July 2008 - Gold moved in the opposite direction to most peoples expectations yesterday, despite the ECB widening the Eurozone/US rate differential with a 25bp hike while US Non-Farm Payrolls came in well below expectations. Instead traders focused on what was interpreted as more dovish comments from the ECB President, suggesting the bank may not make further rate increases, and that the gap between European and US rates may actually start to narrow in the short-to-medium term. Yet despite the reaction to this the precious metal did show a good degree of resilience as good scaled down buying was seen from those still looking for an anti-inflation hedge, and also safe-haven demand ahead of the long Thanksgiving weekend in the US. As if the underline the inflation concerns NYMEX crude oil notched up another record high, touching $145.85 before settling at $145.29/barrel.

Gold spent the first half of Thursday trading around the $940-45 area and made a brief rise to $946.75 in reaction to the ECB rate announcement. Gold held steady till the start of US trade when the market quickly fell as currency traders reacted to the more dovish comments from JCT. Despite the larger than expected drop in US non-farm payrolls the metal dropped, posting the days low of $926.7, but was prevented from extending lower by strong bargain hunter interest. Trading conditions are likely to be on the thin side today with most US players absent, however the metal appears comfortable at current levels, with dips likely to remain well supported as investors continue to seek to off-set rising inflationary pressures. On the charts the metal still has to form a base above $935 and clear overhead resistance around $953-55, while support is pegged at the 100-day MA $917.25 and $909.

Silver posted a high of $18.47 yesterday before following gold down on the US opening, posting a low of $17.97. The metal closed at $18.22 although some profit taking has been seen this morning with silver drifting back towards the $18 level. Like gold silver will remain vulnerable to dollar fluctuations, although given the bullish sentiment across the commodity spectrum and the view silver is a cheaper alternative to gold the outlook over the mid-to-longer term remains bullish. Support below $18 is expected at $17.77 (100-day MA) and $17.65, while clearance of chart resistance at $18.55/75 could trigger a swift move back towards $20/oz.

Despite the increase in ETF holdings this week platinum has struggled for upside traction, with the sell-off in gold & silver triggering a correction back to $2020 yesterday. Further pressure has been witnessed this morning, although given the tightening fundamentals and the risk of further supply disruptions we still expect dips below $2000 to draw strong buying interest from a number of sectors.

Palladium finished $6 lower yesterday at $460 but has fallen sharply to $450 this morning. On the charts support is pegged at $446 and $434 below while the metal still has to clear the band of resistance around $472 before challenging $485/515.

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