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Expect further volatility with an upward bias to prices
Friday, November 17th, 2006 Posted in Gold News |
“In the near term there is uncertainty surrounding Iraq and the economy, which is positive for gold,” says Carlos Sanchez, a metals market analyst at CPM Group, a New York-based specialty consulting firm. “Expect further volatility with an upward bias to prices.”
Source: TheStreet
Gold Inches Lower
By Simon Constable
TheStreet.com Staff Reporter
11/16/2006 2:56 PM EST
Updated from 11:32 a.m. EST
Gold fell Thursday amid choppy trading, with some observers seeing unstable conditions continuing for the foreseeable future.
December contracts closed off $2.10 at $621.70 an ounce, on the Comex division of the Nymex. The bullion exchange-traded funds were edging lower also, with streetTracks Gold Shares (GLD - news - Cramer’s Take) and iShares Comex Gold Trust (IAU - news - Cramer’s Take) each under by approximately 0.4%.
“In the near term there is uncertainty surrounding Iraq and the economy, which is positive for gold,” says Carlos Sanchez, a metals market analyst at CPM Group, a New York-based specialty consulting firm. “Expect further volatility with an upward bias to prices.”
Traders are currently rolling their positions forward in the futures markets from the December contract to those with a February date, Sanchez says. “That is having some depressing effect on near-term prices.” But he adds that “what we see is a buildup of positions February which suggests prices have a way to go up.”
Comex February-dated contracts closed off $2.10 at $627.90 an ounce, with open interest now about 9 million ounces, up from 8.7 million ounces earlier in the session. It compares to current outstanding positions of 15 million ounces for the December contract, down from 15.5 million in the morning. Gold watchers should expect the relative levels of the two to switch rapidly over the next two weeks.
Looking more broadly, many investors were focusing on new data from the U.S. Department of Labor, which reported that consumer prices fell 0.5% in October, compared to the forecasted 0.3% decline. The previous month also showed a decline of 0.5%. The core CPI figure, which excludes volatile food and energy costs, showed an increase of 0.1%. The consensus estimate was for a 0.2% gain.
“These figures aren’t as soft as we might like to think,” says T. J. Marta, a fixed-income strategist at RBC Capital Markets in New York, noting the deflating, and favorable, impact of car prices on the figures. “The Fed governors being what they are aren’t going to drop the inflation-fighting mantle just yet.”
A Fed hell-bent on crushing inflation may not be the most positive factor for gold, which tends to run up in price with higher inflation. But other factors, such as the health of the broader U.S. economy, may restrain policy makers from hiking rates too far.
The minor dip in initial claims for unemployment insurance, which the Labor Department says fell to 308,000 in October, however, reflects a relatively healthy economy. The figure was off 2,000 compared to the revised previous month’s total and 2,000 below consensus forecasts.
Elsewhere, the U.S. Mint reports it sold 8,000 of its 24 karat (99.99% pure) one-ounce gold bullion buffalo coins, but only 1,000 ounces of its 22 karat (91.7% pure) gold Eagle coins for the first half of November. That compares to sales for the whole of October of 21,500 coins and 9,000 ounces, for the Buffalo and Eagle, respectively.
“A considerable number of secondary market Eagles have been sold into the market during the recent rally,” when prices rose from under $580 in mid September, says Bill Haynes, president of CMI Gold & Silver, a Phoenix Ariz.-based coin dealer. “That means there is little reason for dealers to order more from the Mint.”
Among the miners, Freeport-McMoRan Copper & Gold (FCX - news - Cramer’s Take) was losing 2%, and Barrick Gold (ABX - news - Cramer’s Take) was down 1.9% in recent trading.
In base metals, December-dated Comex copper contracts were falling 5.35 cents a penny at $3.041 a pound while shares of copper miner Phelps Dodge (PD - news - Cramer’s Take) were losing 1.3%.
“It’s tempting to say we’ve seen the cycle highs for copper,” says Neil Buxton, managing director GFMS Metals Consulting in London, noting that prices have fallen back from around $8,000 a ton ($3.63 a pound) in early September. “The descent from the highs will be very different than in previous cycles, because the bullish story is in many ways still intact.”
Buxton notes that two bearish factors have helped precipitate the recent decline: an economic slowdown in the U.S., particularly housing, and the continued lower level of exports into China.
Longbow Research took aim at the ferrous metals complex, cutting ratings to sell from neutral on Nucor (NUE - news - Cramer’s Take), U.S. Steel (X - news - Cramer’s Take), AK Steel (AKS - news - Cramer’s Take) and Steel Dynamics (STLD - news - Cramer’s Take).
Stocks of each were losing recently, with U.S. Steel down 2%, Nucor off 2.7%, AK Steel lower by 1% and Steel Dynamics sliding 3.9%.
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