Gold and Silver's Daily Review for 28th July 2010
Gold was 'Fixed' this morning in London at $1,164 down $20 after yesterday afternoon's short selling in New York. The gold price has held in Asia and London and New York so far has only managed to press it down $5.
Traders will continue to work the short side until good support is found. Heavy institutional buyers have been happy to let prices fall in the hope that they will source larger quantities of gold. However, once traders dominate, one not only has volatility, but a thin market. The technical picture is no help to buyers at the moment. U.S. confidence figures again point to another bout of recession. This theme will persist, but short sellers may be leading the way to a sharp rebound, when the time is right.
The European debt crisis is on 'hold' as markets calm and expectations of a Euro collapse lessen. The Euro to Dollar exchange rate is now above $1.30 and recovering more. In the past a weaker U.S. Dollar usually meant stronger gold, but that relationship seems to have been mortally wounded.
The distressed Eurozone nations have sufficient loans to tide them over for a while. The question is, are they able to produce enough money to pay debt down as their economies falter. If they can't, will their Eurozone brethren step up with more loans. Happily no-one wants to address those problems until the loans run out. Meanwhile, the panic is off. Consequently demand for gold has quietened from that quarter, leaving us with a thin market at the mercy of those who couldn't or won't go on holiday.
Gold – Very Short-term
Current buyers are happy to pay less, hopefully for more gold on offer, leaving short-selling traders to take the price down. Some shareholders of gold Exchange Traded Funds have been supporting short sellers, whether through triggered stops or de-leveraging remains to be seen, but the vigor of the fall appears to have been halted.
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Silver – Very Short-term
Silver took another hit today and fell to $17.47 after New York opened. We will have to see if the continuing fall takes it further down. We do expect to see the weaker bias in silver continue.
Silver was 'Fixed' at $17.63, but fell thereafter.
Gold Price Drivers
In this very out-of-season day quiet conditions leave the market wide open to traders pushing prices around. The will have free rein for the next three weeks, so expect volatility until low prices prompt bargain hunters to move in. Investment demand will seek offers of gold, and take them up when made, but we do not expect them to push prices up in an attempt to produce selling. So they will offer no support to prices, but will follow the market.
We now expect fears for a recession in the U.S. to occupy media reports. This will have to be digested before the realization that gold is a harbor against such a storm. The U.S. investor is now well attuned to protecting himself against the unforeseen. So any reaction to a coming recession will be quick, leaving buyers ready to act on lower prices when the season begins.
Julian D.W. Phillips