Friday, June 29, 2007


Gold Will Remain Vulnerable

MarketWatch reports on the markets. "Gold futures closed higher Friday, underpinned by a rally in crude-oil prices and concerns about inflation, but prices finished lower for the week, month and quarter as traders continued to gauge investment demand for the metal. 'The metal really needs to regain all the investor confidence it can as the second half of the year gets under way,' said Jon Nadler, an analyst at Kitco Bullion Dealers."

"Gold for August delivery gained 50 cents to close at $650.90 an ounce on the New York Mercantile Exchange. The contract gained $5.60 on Thursday. But it's down 0.9% from a week ago, when closed at $657. It's down 2.4% from last month's close of $666.70, and it lost 3.6% from the $675.20 level at the end of March."

"But 'the new language' in (the FOMC) statement 'suggests the central bank, which has kept rates unchanged for a year, is nowhere near contemplating a reduction,' said Mark O'Byrne, director at Gold & Silver Investments Ltd., adding that the Committee said inflation remains their 'predominant' concern, which disappointed some traders who anticipated softer FOMC wording."

"'The increase in inflation is obviously bullish for gold,' said O'Byrne.
Also, gold bullion has largely been underpinned by its 200-day moving average of $641.90 since mid-January, he said."

"Gold likely saw support coming from 'month-end, quarter-end and half-yearly dynamics, strikes at copper mines around the world and potential gold and silver mine strikes in [South Africa], a likely pause in the unwind of the CDO [collateralized debt obligation] trade and the fizzling of non-commercial selling,' according to Zachary Oxman, a senior trader at Wisdom Financial."

"'For the moment, sub-$650 should be viewed as a good buying opportunity by physical players as well as investors,' said James Moore, analyst at, in a research report. 'However, as we move into the summer, a time when physical buying traditionally slows, gold will remain vulnerable to further bouts of weakness.'"

"Offering support to the precious metals Friday, crude-oil futures rose sharply, trading above $70 a barrel, supported by supply concerns. Trading in currencies likely added to gold's gains. The dollar fell against both the euro and yen."

"Other metals prices traded on a mixed note. September palladium closed down 20 cents at $368.50 an ounce. It ended the month 1.3% lower, but it was 1.6% above last quarter's close of $362.75. October platinum rose 50 cents to close at $1,286.50 an ounce, finished below last month's close of $1,295.50, but 2.1% higher for the quarter."

"September silver fell by 3.2 cents to end at $12.473 an ounce. It was more than $1 lower for the month and quarter."

"Meanwhile, it appears the Fed is 'more ready to lean on the 'hike' button if it perceives continued core inflation levels that remain above its 'comfort zone' targets,' said Nadler. 'While August is too early to call, the balance appears to be tipping ever so slightly to the rate increase side,' he said. 'It would take a second-quarter GDP as bad or worse than [the first quarter] to push the Fed into the opposite direction on rates, and no one we spoke to expects that [first-quarter] number to be seen once again.'"

"Gold 'has to prove itself on its own merits and react in a classic manner to declining stocks, rising oil, negative geopolitics, factors to which it frequently seemed to pay little attention thus far this year during its decline from $694,' said Nadler."

"Oxman pointed out that another round of liquidation from the gold exchange-traded fund 'seems to suggest that investors are shifting assets away from gold and other metals as the picture seems to be short-term supported, but longer-term bearish,' he said."

"Oxman expects the gold market to see a technical fall to the mid- to high $500s within the next three to six months. 'The fundamental picture is also starting to falter a bit, which gives me some near-term trepidation in terms of holding long gold,' he said."

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