Be Careful What You Wish For…

After weeks of low volatility range trading, precious metals finally broke trend, with sharp losses seen last Friday, with Gold settling below the key support of $1180.  Fridays have been particularly bearish sessions as investors concerned with holding long positions over the weekend opt to close positions out.  Rumours that Greece was closer to a bailout deal after Thursdays summit of Eurozone ministers fuelled those concerns.  However, the Greek debt situation still appears far from over, especially after Greek Prime Minister demoted lead negotiator and Finance Minister following months of ineffectiveness in resolving the countries debt obligations. This saw the yellow metal regain lost ground to close nearly $30 higher on Monday.  In fact we’ve witnessed a complete turn-around in the fortunes of precious metals. On the one week performance, Silver led the surge higher jumping 6.1% higher, while both Platinum and Gold climbed 3% from this time last week.

Meanwhile, the US dollar index has been dragged lower, after disappointing U.S data (weaker Consumer confidence) and dampened expectations that the Fed will hint at this week’s FOMC of an imminent rate hike. This is the latest in a series of lacklustre data from the states, with yesterdays the US flash services PMI also missing consensus.  A weaker USD is positive for commodities like gold which are priced in USD as it makes them cheaper for non-dollar users. Unfortunately the weakness in USD has also pushed commodity currencies such as the NZD higher. So in NZD terms, Gold is still hovering around the $1600 NZD per oz. level.  Undervalued on medium term charts.

Looking ahead, the next 24 hours should be very eventful.  Tonight we get an update on US 1st quarter GDP with estimates as low as just 0.1% annualised.  Followed by tomorrow morning’s Federal Open Market Committee meeting.  Then closer to home, we get the latest thinking from our own Reserve Bank. Expectations are that they will try and talk the NZ currency down given how low inflation is currently running. Personally I’m looking for higher levels in the NZD/ Gold levels in the coming week.

By Adam Van Sambeek, Treasury Manager.

Will Gold and Silver Follow Crude Oil’s Suit?

Gold consolidates just below the $1,200 per ounce with no fresh news or direction for traders to latch on to. Renewed dollar strength follows unclear FOMC minutes, which could’ve been interpreted anyway to suit your own view on the FED’s ultimate intentions. This is capping any sustained Gold rally.  Gold failed to hold key 1205 support, after briefly climbing to 1224 just before Easter, returning to its high volume comfort zone of around 1200.  Traditionally, precious metals now enter the seasonally-low period where physical demand historically declines. However, the yellow metal is showing resilience, with higher lows and higher highs, with the next few trading sessions crucial for bulls that we maintain above the 1190 level.  Last night did see this level break, only to claw back losses, closing at $1193, after weaker than expected US retail sales and slump in small business confidence.

Interestingly, the Commodity Futures Trading Commission (CFTC) reported that the Comex speculative traders increased their net-long positions in gold to 100,757 contracts, which marks a five week high, up from 80,019 a week earlier.  A sustained build in price and an adjustment in current bearish sentiment, could rise the likelihood for further long accumulation and short-covering in the coming weeks. However this still poses risks, as this data proves the market remains highly speculative, and therefore vulnerable to price swings. Good news is we’ve already seen Crude oil prices recover 15% over the past month, leading a small commodity revival, as investors seek value in beaten up sectors. Will Gold and Silver follow suit?

By Adam Van Sambeek, Treasury Manager.

FOMC Report Results in Sudden USD Correction

Apologies for the delay in our weekly report, but with so much riding on the Federal Reserve’s Federal Open Market Committee (FOMC) report released this morning, it’s more beneficial to analyse its impact.

Earlier this month a better than expected US jobs report fuelled speculation that the Fed would reveal a more hawkish stance in this morning’s announcement. In reality many were wrong footed by a subdued assessment of the US economy, leaving the market to rethink the timing of any increase in US interest rates. The FOMC noted that “economic growth has moderated somewhat” over the past month, which is a significant downgrade from the last statement wherein it said that activity rose “at a solid pace”. They also indicated that when interest rates do rise, they will likely rise at a slower rate than previously expected. Compared to expectations, this is a strongly dovish statement, resulting in a scrabble to cover and adjust positions.

The most significant impact from the report was the sudden correction to the USD. The USD index (a basket of currencies against the US dollar) plummeting 5%, before settling 2.2% lower. Precious metals and commodities all benefiting, with Gold climbing back above US$1150 support to close near US$1170 (+1.6%), while Silver gained 2% to settle just shy of US$16 per ounce.

Looking ahead, Gold still has plenty of headwinds, so I’m not getting overly excited unless we break and hold US$1180 resistance. As per last weeks suggestion, I do own Gold Call options, allowing me to benefit from any sustained Gold rally. With Platinum at US$1116, this is undervalued considering fundamentals, so I’m suggesting to hold and buy more with a view that we see a re-positioning in the market which will carry Platinum to 1175-1180 resistance levels. (more on this next week).

By Adam Van Sambeek