Friday, 20-October-2006
Gold opened above $600 level on Tocom, with good selling interestpushing it down to $599.80. Sellers turned into buyers on the lows, but dueto the absence of any follow through the metal was limited to $600.50 onthe upside. In Europe spot reached the high of $602.50 as oil steadiedafter OPEC agreed to cut output by more than expected. Group’s ministersagreed to cut by 1.2 million bpd instead of 1 million from the first ofNovember.
OPEC published a list of individual cutbacks, but left the formalquotas unchanged. Saudi Arabia will shoulder around 32 percent of the cut.The group, which supplies about a third of the world’s crude, proceededwith its deepest cut since January 2002, equal to about 4.3 percent ofSeptember supply. Some ministers said on Friday that a further cut of500,000 barrels per day could follow when OPEC meets in Nigeria inDecember. The spike higher on the surprisingly bigger cut was short livedand the prices fell back. The retreat was accompanied by the speech of theIranian President Mahmoud Ahmadinejad broadcasted on the state radio. Hesaid that Europe was stirring up hatred in the Middle East by supportingIsrael, “We have advised the Europeans that the Americans are far away, butyou are the neighbors of the nations in this region. We inform you that thenations are like an ocean that is welling up, and if a storm begins, thedimensions will not stay limited to Palestine, and you may get hurt”.
Goldfixed at $598 on the first London fixing, up 8.25 dollars from the previousAM one. Subsequently spot drifted lower after the opening of the Comexdivision of the New York Mercantile Exchange. The market was very quietwith the precious metal hovering between $596 and $599 without any cleardirection. Some selling interest emerged on the second London fix, whichmade the prices settle at $596.60, down only 65 cents from the previous PMfix. In the meantime Brent crude for December delivery dipped below $60 perbarrel, triggering further selling in gold. The low was gradually extendedto hit $591.60 per ounce less than an hour before the close. The metal onlypartially managed to recover the intraday losses to settle at $593.45.
Iran is back on the agenda, which could be a supportive factor forthe yellow metal as instability in the region could increase its safe havenappeal. Iran’s file was sent back to the council and it now faces possiblesanctions after failing to meet a demand to halt uranium enrichment.Britain’s ambassador to the United Nations, Emyr Jones Parry said thatEuropean nations hoped to circulate a draft text on sanctions against Iranto the full council early next week. The Iranian President MahmoudAhmadinejad stated today that any consideration of imposition of sanctionsby the Security Council was illegitimate, “You (the council) want to be thejudge, the prosecutor and the executor at the same time? Those times aregone”. The speech by the Iranian president was made to worshippers atFriday prayers and broadcasted on state radio; he also added that theSecurity Council was serving US and British political purposes. Thisspeech comes after Iran’s nuclear negotiator Ali Larijani said on Wednesdaythat there might be a suspension of international atomic inspections ifUnited Nations imposed sanctions.
The Iranian Lawmakers are alreadystudying a bill that will oblige the government to halt inspections byIAEA, which at present carries out checks of the facilities. On the otherhand North Korea clarified the doubts about a possibility of a secondnuclear test today. The country’s leader Kim Jong-il was quoted by theSouth Korea’s news agency as saying that Pyongyang planned to conduct nofurther nuclear tests. Chinese envoy Tang Jiaxuan, who recently returnedfrom Pyongyang, said during a meeting with US Secretary of StateCondoleezza Rice in Beijing that Unites States should take a more flexibleattitude towards dealing with North Korea nuclear crises and that allparties should display political wisdom as well as return to the six-partytalks.
Gold struggled to break the $600 level this week with a solidresistance provided by the $602 and $610, 200- day and 100-day movingaverages respectively. We believe that unless we are able to break andstabilize above the $602 level, the precious metal will remain within the$560-602 range until a clearer direction is established. Marketparticipants will be closely watching the US central bank’s interest ratemeeting next week. The Federal Reserve is widely expected to keep rates onhold, at 5.25 percent. Along with the FOMC interest rate announcement onWednesday we will also have the US existing home sales data. Thursday theUS durable goods orders will be out as well as the US new home sales and wewill end the week with US GDP and consumer sentiment.
There was no real interest in the silver market in Asia once again.The metal remained firmly above the 12 dollar mark, but failed to breakbeyond $12.06. During the European hours the very quiet two-way tradingscenario persisted. The white metal at first only slightly extended bothsides of the overnight range, but then followed gold in its downside movein the late afternoon. Spot hit the low of $11.84 to then remain hoveringaround the lower side of the intraday range and settled just above the11.90. We believe that silver needs to sustain and stabilize above the $12level in order to be able to head higher.
MKS Gold & Silver, Daily Report
by Lidia Nazarova
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