Good Friday Morning,
A small overnight dip to $945 in gold prices gave way to a fairly quick recovery as the US dollar took a more substantial 0.34 point hit on Friday morning and fell to 78.63 on the trade-weighted index. The yellow metal and the greenback have been executing a close tango for the past couple of weeks now, and weakness in the latter has translated into persistent bumping-ups against the $957 resistance area in the former. The weekly Bloomberg price survey reveals that polled opinion is positive for bullion as we turn towards closing out the month of July next week. Thus, gold might test towards the $975 level if conditions continue to be less than favourable for the US currency. That's the part that remains to be seen.
New York spot gold dealings started the final session of the week with a $3.30 gain per ounce, and were quoted at $951.30 this morning. In the background, the dollar was still mired near 78.66 and crude oil fell only 33 cents to $66.83 per barrel. Book-squaring ahead of the weekend may hold things back price wise later on in the session, but the developing pattern cold imply a new range for the metal - from $930 to $975- one tat is about $25 higher than what we had gotten used to recently. Silver added 6 cents on the open, to start the day at $13.76 an ounce. Traders do see possible tests of the $14 level in the cards, but we do not have a polled participant survey result to offer for the white metal.
Platinum rose $6 to $1181.00 and palladium was unchanged at $256 as the trading day got started. America's version of 'cash for clunkers' begins now, and US car dealers are hoping to turn the turning in of junky cars into some kind of sales revival for their dust-laden new product that is still choking the lots all over the place. Wonder how much platinum might be recycled from said clunkers in coming months and how much the program will mean to new car sales. If nothing else, the removal of cars that pollute a lot more than the current generation from the roads has to be something to cheer about.
True, growing risk appetite among investors has sapped a couple of full points of the dollar index, however there is no consensus yet on what next week's GDP numbers and Treasury auctions might bring in the way of fresh impact factors to this market. As well, short-term conditions are flashing: overbought. Thus, we cannot rule out a quick retrace to the $930s before a resumption of the push to higher ground reignites.
Also worth noting is that such pressures have been more directly related to dollar trading and not so much coming as a result of fresh waves of retail investment buying. Historically speaking, trading gold strictly as an against the dollar gamble results in a 73% chance of making the wrong bet. Odd as it may seem to many, the correlation of bullion to the US currency has been -0.27, even if certain years offer exceptions that bring that correlation as high as -0.85 (such as was the case in 2005). And, at a time when everyone and their cousin is screaming 'inflation!' in this crowded market theatre, it is also worth reminding them that gold and the long-term CPI show but a 10% correlation. Not exactly the kind of number one attaches to the 'prefect inflation hedge' product label.
Finally, the newest precious metal ETF baby on the block saw its umbilical cord being cut yesterday, and was slated to greet the world today. This, at a time when silver's fundamentals are not as healthy as one would wish for a newborn. The market finds itself amid a substantial surplus and has also (like gold) become heavily (some say exclusively) hooked on the investment formula bottle in order to keep adding weight. Have a cigar. If you are so inclined. The question of the day/week/month/quarter/year is fast becoming: can X (insert gold, silver, copper, oil, platinum, etc.) keep up the momentum? Better ask momentum funds that sticky question, we say.
Happy Friday to All,