Friday, October 20, 2006


Gold Downtrend Force To Be Reckoned With

Some currency news. "The dollar made modest gains against the euro and yen on Friday, despite disappointing U.S. economic reports a day earlier. The euro bought $1.2620 in late New York trading, just off its level of $1.2626 in New York late Thursday."

"The dollar also rose to 118.65 Japanese yen from 118.15 yen, and 1.2587 Swiss francs from 1.2572. However, the British pound rose to $1.8843 from $1.8777, and the U.S. dollar slipped against the Canadian dollar to 1.1246 from 1.1273."

"'The dollar may have taken a tumble yesterday on the back of some worse than expected U.S. manufacturing data, but traders now seem reluctant to let the greenback slip much further ahead of the (Fed) rate meeting due next week,' said David Jones, chief market analyst at CMC Markets. 'Consensus is still suggesting that the next move for interest rates ... will be lower, but precisely when this will be seen is clearly open to debate,' he said."

"The main focus of the day was on North Korea and OPEC. China has toughened up its stance and has banned bank transactions between the two countries. In addition, the market continues to doubt whether OPEC members will actually follow the cartel's production cuts. The fear is that if oil prices continue to remain low, some of the smaller members would feel compelled to make up lost revenue by increasing production once again. Russia has already announced that they have no plans to back OPEC's decision and will not be reducing oil production."

"The Financial Times reports that the previous strength in oil prices has encouraged many members to overspend in increasing production. In order to meet its current pace of spending, Saudi Arabia needs oil prices to trade at a minimum of $38 a barrel which compares to $15 a barrel in the mid nineties. Their costs continue to grow by 20 percent a year, which means that if growth continues at that level, by 2010 oil prices would need to be at $65 a barrel for them to breakeven."

"There are three main events that we are watching in the US next week which are Durable Goods, GDP and the Federal Reserve rate decision. Although no changes are expected in US interest rates, as usual, the FOMC statement could provide some clues on how far away we may be from another change in interest rates. More specifically, we will be looking for whether they put greater emphasis on the drop in headline inflation or the rise in core prices."

"Gold futures closed under $600 an ounce Friday, as weakness in oil prices dampened the metal's attractiveness as an inflationary hedge, but the benchmark gold contract still tallied a gain of nearly $4 for the week as a whole."

"'If and when prices were to penetrate strongly over the low $600s, the mood would surely improve,' said Jon Nadler, at bullion dealers The trouble for gold bulls are 'repeated failures and pullbacks we witness at higher levels,' he said."

"Gold for December delivery closed down $6.10 at $596.40 on the New York Mercantile Exchange, retreating from an intraday high of $602.80. The contract, however, closed near a three-week high on Thursday and ended 0.6% above last week's closing level of $592.70. December silver futures fell 19.5 cents to close at $11.965 an ounce, up 2.4% for the week. January platinum lost $12.70 to end at $1,082.10 an ounce, slightly lower than last week's closing level. December palladium closed off $6.90 at $330.50 an ounce, up about 4.6% for the week."

"For gold, 'plenty of resistance lies between $600-$608, the upside break-out level on the charts," said James Moore, an analyst at 'We are getting closer to a reversal confirmation here, until then, the downtrend channel remains the force to reckon with,' said Peter Spina, chief investment strategist at"

"Looking further ahead, 'we could see oil move easily back to the mid-$60s and this appears to be enough impetus to take gold definitely back above the $600 levels,' he said. "

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