Wednesday, 25-October-2006
Gold was stagnant in Asia. It was limited to $584.50 on the upsideand remained rangeless for the first part of the Tocom session. Spotdrifted lower in the afternoon, but once again in the absence of any followthrough selling the downside was also limited. There was very littleactivity during the European hours as well.
The precious metal held a verytight range just above $580 level to fix at $581.60 on the first Londonfixing, up 3.2 dollars from the previous AM. Once again traders remainedsidelined ahead of the release of the statement following the US FederalReserve’s decision on interest rates. The most impact is awaited from theaccompanying statement as the interest rates are widely expected to remainunchanged. The absence of a clear recovery in oil keeps preventing themarket from regaining ground towards the key $600 psychological resistance.Prices hovered in a four dollar range before loosing ground prior to thesecond London fixing. Spot dipped down to $580 while on the fix we weretrying at $579.
At the same time the US economic data was out. The FederalReserve Bank of Chicago said that that its gauge of the national economyfell in September due to the weakness in manufacturing and job growth. Thenational activity index fell to -0.51, suggesting economic growth is belowhistorical trend and indicating little inflationary pressure over thecoming year. The pace of existing US home sales fell for the sixth straightmonth in September, representing a sharper than expected drop and thelowest reading since January 2004. Subsequently we fixed at $580.75 wherebuying interest emerged along with the Brent gaining over a dollar as theUS crude inventories surprisingly dropped 3.3 million barrels in a week toOctober the 20th. US distillate and gasoline supplies also fell by morethan anticipated. Gold rallied and in a matter of minutes, recovering allthe intraday losses. The high was extended to 589.40 shortly after followedby some time of quiet two-way trading on the top side of the range. Aboutan hour before the close the yellow metal challenged the $590 resistanceand traded up to $591.50 per ounce, but ended the session at $588.25.
Afterthe market closed Fed announced that the interest rates are left unchangedat 5.25%, as expected. The awaited accompanying statement said that “thereadings on core inflation have been elevated, and the high level ofresources utilization has the potential to sustain inflation pressures.However, inflation pressures seem likely to moderate over time, reflectingreduced impetus from energy prices, contained inflation expectations, andthe cumulative effects of monetary policy actions and other factorsrestraining aggregate demand”. Nonetheless, the Committee judges that someinflation risks remain and that the future additional firming will dependon the evaluation of the economic and inflationary outlook. We believe that gold will continue to be influenced by oil pricefluctuation and remain enclosed by the $570-600 range in the short term,with the 600 dollar mark representing the key resistance on the upside.
Silver was very quiet in the Far East, bounded by a narrow range. InEurope the same scenario prevailed at first. The metal fixed at $11.75, up18 cents from the previous one and was limited to $11.70 on the downside.The prices rallied along with gold’s and crude oil’s jump during the Comexhours to extend the high to $11.92. All the gains could not be sustainedthough and spot slipped below the $11.90 resistance, but remained hoveringjust below it for the rest of the NY session. We believe that silver willcontinue mirroring gold and will remain restricted by the $11.50/12.00range in the short term unless the $12 major resistance is successfullychallenged.
MKS Gold & Silver, Daily Report
by Lidia Nazarova
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