Friday, 27-October-2006
Gold opened slightly lower on Tocom compared to the NY close of$597.25 Thursday. The market remained very quiet with the upside beinglimited to $596 and the downside to $595. During the early European tradingthe yellow metal revisited the Asian highs, but fixed lower, at $593.75 onthe first London fixing.
Spot drifted further down after, weighed by theBrent loosing ground following a wave of profit taking triggered lastnight. The downside was however limited to $592 per ounce, as there was nofollow through selling in this stagnant market. Overall the price actionwas inexistent as traders remained sidelines ahead of the US GDP data.After the opening of the Comex division of the New York Mercantile Exchangethe third quarter US GDP growth was announced to be well below the analystsforecasts. The gross domestic product, which measures total economicactivity within the United States borders, expanded at only a 1.6 percentannual rate. According to the Commerce Department economic growth in thethird quarter was at its weakest pace in more than three years. The rate ofgrowth reflected a range of influences that helped to slow the economy. Themost remarkable was a 17.4 percent annual rate of construction and spendingon new housing, which represents the biggest decline in more than fifteenyears. The US prices data was mixed. The US personal spending excludingfood and energy slowed, to increase by less than anticipated during thethird quarter. On the other hand the core prices were up 2.4 percent, attheir strongest rate since 1995.
The data release did not have an immediateimpact on the market, but the late reaction finally came along and the USdollar was sold, lending support to the precious metal. Spot climbed to thehigh of $599.80 as the resistance around $600 level continued to bedifficult to overcome. By the second London fixing time the University ofMichigan reported that the US consumer sentiment came out to be better thanexpected in October, up to 93.6 verses 92.5 projected. Gold experienced awave of selling pressure, which brought us to a chaotic and long PM fixing.At first sellers pushed the prices to try as low as $595.8 where theyturned into buyers and half an hour later we finally fixed at $596.25.Subsequently the market became quiet again despite the report by the newsagency ISNA, which stated that Iran is enriching uranium in a secondnetwork of centrifuges. The agency quoted a source as saying that “theinjections of gas was carried out. We have obtained a product of the secondcascade”. Uranium gas is injected into cylindrical centrifuges which spinat supersonic speeds to produce enriched material. The French ForeignMinistry spokesman said to reporters in response to the news that “this isincreasing the worries of the international community about the growth ofIran’s capacity to produce fissile material” and added that the prioritywas to move towards negotiations of the Security Council resolution. Thefive permanent members of the Council still remain divided about the draftsanctions resolution. After the first meeting of the five members plusGermany yesterday on the draft resolution, no agreement has been reachedand it is not expected until sometime next week after which the text willgo to the full 15- member Security Council. The yellow metal remainedbounded by the $595-$599 range until the close.
We expect the crude price fluctuation to remain the key driving forcein the short term. The crude supply should continue to be of concern withthe winter season approaching. So the US inventory data and OPEC productiondecisions are likely to be very closely watched. We believe that the breakof the $600 psychological resistance is very important for the maintenanceof a bullish momentum, but a lack of significant buying made gold fail todo so several times this week. If the failure to break higher persists, themarket is likely to remain in the $570-600 range by which it was enclosedsince mid September with an exception of a couple of days when we dippeddown to $560. Next week will be charged with US economic data. Personalincome and core PCE will be out Monday, consumer confidence and Chicago PMIon Tuesday, ISM manufacturing along with construction spending and pendinghome sales Wednesday, Initial jobless claims and factory orders on Thursdayand finally payrolls, unemployment rate as well as ISM non-manufacturingdue on Friday.
Silver was also very dull in the Far East. It held well above the$12.10 level, but fell five cents short of the $12.20 resistance. In Europethe metal lost further ground to fix at $12.05 in London and remained rangebounded until the opening of the NY trading session. The white metalfollowed gold in its upside move after the weaker US economic growth data.The overnight high was extended to $12.18, but the gains were very quicklyabandoned and the low gradually extended to $12. Spot drifted sideways onthe bottom side of the intraday range for the rest of the Comex hours. Wethink that silver has the potential for trading higher if the $12 level,which is now acting as a support, is sustained.
MKS Gold & Silver, Daily Report
by Lidia Nazarova
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