The latest OMF Metals Report by Kevin Morgan:
Overview *Gold unfazed by Greek tragedy *Silver looking cheap compared to gold *Copper slumps on China fears
See page 2 of the report for trading recommendations
Wednesday June 17th 2015.
Hi all, Gold had another wait and see week, treading water around US$1182 per oz. awaiting news on another Greek deadline due this Thursday. Today also marks the beginning of the FOMC’s two day meeting. The US central bank isn’t expected to raise interest rates, however many in the market are now factoring in a likely increase later in the year, with most punters picking September. Speculation has therefore favoured the USD, edging higher, and in turn weighing on commodities and commodity currencies such as the Kiwi. The good news for Gold traders is that the Kiwi has fallen faster and further than Gold and Silver, pushing up Bullion prices in NZ terms.
In uncertain times you can be sure of one thing… volatility!. With talks having stalled ahead of the technical deadline for an agreement on Thursday, the likelihood of a deal being reached is now almost non-existent. The Euro group finance ministers meeting is still scheduled to decide the “fate” of Greece, but there have been so many of these meetings it is hard to see this one producing anything concrete. It also looks like the market has become complacent, anticipating another last minute deal to be reached, so hence traders aren’t jumping into Gold… yet.
While Gold has had the benefit of safe haven support, the rest of the precious metal complex have struggled. Platinum and Palladium both are being dragged lower by a risk off sentiment swirling around the stock markets. Already this month Palladium has lost 6% to now trade at US$1,080 per ounce and Platinum has dropped approximately 3% to $732.45 per ounce.
I’m not a betting man, but I can’t see the benefits of selling precious metals at current levels, especially this close to major technical support and with such large event risk looming. Buying Call options appears best strategy ahead of tomorrow’s announcements.
By Adam Van Sambeek, Treasury Manager.
Last week I noted Gold’s test of the resistances just over US$1200, now we’ve seen long held support come under pressure this week. This all stemmed from last Fridays much watched US employment numbers which exceeded estimates, driving up expectations that the Fed would move sooner rather than later to increase interest rates. The resulting speculative jump in US dollar saw Gold fall below long held support around US$1175, which in turn triggered protective Sell stops placed just below this key level, spiking prices to US$1162 lows. Gold had declined in four of the five sessions last week as US data gradually confirmed the Federal Reserve recent minutes, which said declining first quarter growth was due to temporary factors like the unseasonably harsh winter. The Fed removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely dependent on data so a rate increase could happen at any future meeting.
Meanwhile in Greece, the country delayed last Fridays 300-million-euro repayment to the IMF until the end of June, increasing the risk of a Greek exit from the bloc. Concern over this situation however has failed to propel interest in gold. With investor sentiment for gold so weak, gold prices may well continue lower but I feel this is leading to a better buying opportunity. And given developments in Greece and with the potential for corrections in other asset classes, it may not be too long before the markets start looking for a safe haven again.
As for Silver, this has dropped below the $16 mark for the first time since May 1 and has struggled to regain and hold this level. Currently we’re sitting just below that at US$15.968 per oz. Technical charts indicate that we’re sitting on an ascending support line, which originated in March of this year. Silver should be viewed as oversold and therefore valuable to a corrective bounce. I’m a buyer of Silver at these levels with a protective Stops at 16.87.
By Adam Van Sambeek, Treasury Manager
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It may be a shortened week, but already we’ve seen plenty of excitement. Monday saw a surprising spike in Gold prices, making a brief foray above $1,200, but with very little follow through, prices quickly retreated. I couldn’t find any explanation for this sharp jump in price, except that Mondays are notorious for thin volumes, and being the first day of the new month, we tend to see a fresh allocation of managed funds hit the market. Once again, Gold prices settled back into the regular trading range between US$1175 and US$1225.
Meanwhile, Greeks and officials from the ECB and the IMF remain locked in negotiations. Greece looks set to make a first repayment of 300 million euros to the IMF on June 5, but it’s still unclear how it will pay off the rest of its debt. The immediate concerns surrounding the looming debt deadline may have eased, diminishing part of gold’s safe-haven appeal, but it may not all be bad for Gold. If a deal is struck, its highly likely to see a resurgence in the Euro, driving US dollars lower and overall benefiting commodities. Last night’s upbeat German unemployment data and positive Greece talks saw the euro claw back 2.5% against the US dollar, its biggest gain in nearly 3 months.
Looking at other precious metals, Platinum has been the worst performing metal in the sector, sliding 1.4% through May. Palladium didn’t fare much better dipping 0.6%, underperforming Gold, which gained 1.5% and Silver, up nearly 4% on the month. I can’t find sufficient reason for the under-performance by the PGM’s, so I’m buying Platinum, particularly at current levels around US$1100.
By Adam Van Sambeek, Treasury Manager.
After a data filled week, precious metals still remain in relatively tight trading ranges, barely changed from this time last week. While we’ve still experiencing some whippy trading sessions, the ultimate outcomes have done very little to denote direction. Friday’s much anticipated US non-farms payroll data was viewed as positive on meeting market expectations. Revisions lower from last month’s pervious report perhaps tempered traders relief following a recent string of weaker economic releases. Although one piece of less negative data shouldn’t rise expectations of interest hikes happening anytime in June.
Across in China, news of further stimulus from China’s central bank cutting their one year lending rate by 25 basis points to 5.1% should have a positive flow on effect for commodities. These changes are aimed stimulating their slowing economy to reach its 7% growth targets. Expectations are that this is not the last stimulus, with further easing to follow in the coming months. Lack of commodity demand out of China certainly hasn’t gone unnoticed by the precious metals sector.
Closer to home, we’ve finally found some relief from a high NZD. Since the NZ Reserve Bank hinted it would cut interest rates if demand weakens and inflation remained low, many major banks have come out revising their interest rate forecasts. ANZ Bank is calling for interest rate cuts in both June and July, along with First NZ Capital calling for cuts. This resulted in sharp 2 cent correction in the NZD/USD. Adding fuel to calls for interest cuts, NZ employment data released late last week showed our unemployment rate for the first quarter remained at 5.8% vs expectations of a drop to 5.5%. Our rock star economy may be having Justin Bieber like fall from fame. This isn’t of course all bad, those holding Gold paid in NZD will be reaping the benefits. So noted in this report, I’ve fancied Gold in NZD terms, therefore the recent demise of NZD has seen Gold values in NZD climb 2%, while USD pricing remain stagnant.
Golds trading patterns appear to be forming a wedge, with declining highs, but with lows remain unbroken, forming progressively resilient support. This doesn’t mean that we can now assume a price floor is in place, it just highlights strong demand for Gold at the US$1150-1170 per oz. area. On the topside, we’ll need a break of US$1205 per oz. before we can feel more convinced about future higher prices. Otherwise we have a clear trading range in which we can sell into spikes around US$1200-1205 with protective stop losses close to US$1210 -1215 per oz. However, my preference is to buy on dips around US$1175-1180 per oz.
By Adam Van Sambeek, Treasury Manager
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.
It shouldn’t have come as any surprise that following last week’s meteoric rise in Gold, involving the longest winning streak in over a year, we would witness some sort of correction. The pullback in gold picked up steam after Federal Reserve chairwoman Janet Yellen said late on Friday that an increase in the benchmark federal funds rate “may well be warranted later this year” given a sustained improvement in US economic conditions. This was enough to see Gold prices retreat back to $1180 support, having stumbled around the $1200 psychological resistance. Many may argue that last week’s rally is in fact the correction to a market in a strong downward trend. That may be the case, but more weight should be placed on Gold’s recent resilience and how convincing $1150 support has become.
As stated many times before, USD is the main driving force for commodities, and in particular the increasingly public debate on when the Fed will raise interest rates. This has become highly speculative, with traders forecasting the Fed’s next move anytime data is released. Last night’s data was no exception, a weaker-than-expected ADP employment report followed by disappointing ISM Manufacturing data saw traders selling USD, with subsequent gains for commodities. This heightens volatility in an already uncertain market, making trading decisions increasingly difficult. Don’t expect any respite as we head into Easter, Employment and Non-Farm Payrolls are due tomorrow night, and in a holiday thinned market, expect volatility. (Non-Farm Payrolls are expected to show an increase of 245k with the Unemployment Rate holding at 5.5%. )
I particularly like Bullion priced in NZD. Last night’s disappointing Global Dairy Trade auction saw the index fall 10%, while New Zealand Whole Milk Powder falls 13.3%. All this should put NZD under pressure, which is long overdue for exporters into Australia who’ve been suffering a near parity exchange rate of late. Happy Easter everyone.
By Adam Van Sambeek