Gold gains 2.5% on the week but physical buying not supportive of rally
Source: Precious Metals, Emirates NBD , Author: Gerhard Schubert
Posted: Sat July 28, 2012 5:07 pm

UAE. Emirates NBD, the United Arab Emirates biggest lender by assets,  released today the latest weekly Precious Metals Report.
 
Week review
 The US GDP figure for the 2nd Quarter 2012 has been released and the economy grew by 1.5 per cent. This was the lowest number since the 2nd Quarter of 2011.
 The US consumer confidence dropped to its lowest level this year. The index declined in July to 72.3 from 73.2 in June.
 The President of the European Central Bank (ECB), Mario Draghi, has announced that the ECB will do whatever it takes to safeguard the Euro.
 This was followed one day later, by a joint statement from Mr. Hollande, President of France, and Ms. Merkel, Chancellor of Germany, reiterating the commitment of
both countries to the Euro.
 The yield for Spanish 10-year bonds rose last week to 7.62 per cent, before falling on Friday down to 6.74 per cent, as a result of the statements from the ECB,
France and Germany.
 The Spanish unemployment rate rose to 24.6 per cent in the 2nd Quarter, up from 24.4 per cent in the 1st Quarter of 2012. The rate of Youth unemployment (under
the age of 25) is still well over 50 per cent.
 Representatives from the ECB, IMF and the EU (Troika) have held talks with the Greek government about the progress and implementation of their agreed
austerity measures. The Troika will leave Athens Sunday, July 29 and the final report is expected towards the end of August.
 The Indian rupee finished the week at 55.25 to the dollar.

Gold US$1,623.00 – up US$40.00, or 2.5%, from last week.

Gold has managed on Tuesday of last week to overcome the resistance at the US$1,600 level. This was a Euro/Gold driven move, which propelled Gold in Euro terms above the Euro 1300 mark.

The strong statement from Mr. Draghi on Wednesday, followed by the joint French-German statement on Thursday, paved the way for this very encouraging higher move. The question remains if this move is sustainable, as the amount of physical buying does not necessarily appear to be supportive of the rally.

Technically, Gold has overcome and most importantly closed the week above the 100-day moving average (US$1,617). The events of next week are important and will prove if and how the market can confirm last week’s price movement.

It seems that there is a meeting scheduled between US Treasury Secretary Mr. Timothy Geithner, the German Finance Minister Mr. Wolfgang Schaeuble and the President of the ECB Mr.Mario Draghi.

The continued discount of physical gold in Dubai against gold loco London is also an indication that this price move has not been sparked or supported through physical
activities.

This is important to note but the potential re-awakening of the global investor interest could lead to more price increases, in the wake of the on-going European Sovereign Debt issues. The growing discussions in the US about the potential impact of the “Fiscal Cliff” on the US economy in 2013, are also supportive for the outlook of gold.

The Commitment of Traders Report (COTR) shows a reduction of long and a tiny increase of new short positions. This report was based on the close of business Tuesday, 24th July, and it might be fair to expect that this picture has somehow changed, through the events in the later part of last week.

Option volatilities midrates: Gold atm (at the money)
1 month 16.50% up 1.50%
3 month 18.50% up 2.50%
6 month 20.25% up 1.75%
1 year 22.50% up 1.50%
Discount 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US $ 0.50
EFP Spot Gold to December Comex: US $ 3.40
ETF: Holdings are at 2498 tons
Support: 1590 and 1550 Resistance: 1630 and 1657

Silver US$27.72 – up US$0.41 from last week.
Silver finished the week higher, in line and in sympathy with the price movement of gold. Silver did attempt trading under the US$27 level again. The selling was met by solid buying and this might indicate that the market has found a bottom, at least for the near future.

The technical picture for silver is not as good as the one found for gold, at least not yet. It would be important to see, if the market is able to overcome the resistance at the US$28 level in the first instance, before silver might find renewed interest from the investment community.

The COTR report shows that both, fresh long as well as short positions have been added.

Option volatilities midrates: Silver atm (at the money)
1 month 29.00% up 1.50%
3 month 32.00% up 1.00%
6 month 33.50% up 0.50%
1 year 35.00% unchanged
EFP Spot Silver to September Comex: US $ minus 6.50 cents
ETF: Holdings are at 15285 tons
Support: 27.20 and 26.09 Resistance: 28.00 and 28.50

Platinum US$1405 – down US$7 from last week.
The discount to Gold has increased to over US$215. The Commitment of Traders Report shows a rise of both, long and short positions. Platinum has just about regained the US$1400 level, and that hasbeen clearly helped by the price action of gold.

The widening spread between gold and platinum indicates that some of the drivers for gold have a negative impact on platinum. The uncertainties about the world economy, European Debt issues and especially the US economic slowdown are creating positive vibes for gold, while being interpreted very differently for platinum as “the industrial precious metal.”

Option volatilities midrates: Platinum atm (at the money)
1 month 19.00% up 1.00%
3 month 20.90% up 0.50%
6 month 22.00% up 0.50%
1 year 24.00% up 0.50%
EFP Spot Platinum loco Zurich to October NYMEX: US $ 0.90
ETF: Holdings are at 46 tons.
Support: 1380 and 1350 Resistance: 1430 and 1478

Palladium US$574 – unchanged from last week.
Palladium had a quiet week.Palladium positions have seen a reduction in long and an increase in short positions, according to the Commitment of Traders Report. The Palladium market has held reasonably well but this is already the best that can be said about the current levels.

Prices are holding steady but it is difficult to see opportunities for significant price rises in the current economic and political environment. Maybe a time of stability is ahead of the market while gold, and partially also silver, will follow a very different scenario of volatility.
Option volatilities midrates: Palladium atm (at the money)
1 month 21.00% unchanged
3 month 23.00% unchanged
6 month 25.00% unchanged
1 year 28.00% up 1.00%
EFP Spot Palladium loco Zurich to September NYMEX: US $ minus 0.50
ETF: Holdings are at 63 tons
Support: 560 and 540 Resistance: 588 and 607

Note: This is the Precious Metals Report for July 28, 2012 by Gerhard Schubert, Head of Precious Metals at Emirates NBD.

About Emirates NBD
Emirates NBD (DFM: Emirates NBD) is a leading bank in the region. Emirates NBD have a leading retail banking franchise in the UAE, with 132 branches, 705 ATMs and SDMs. It is a major player in the UAE corporate banking arena, and has a strong Islamic banking, investment banking, private banking, asset management and brokerage operations.

The bank has operations in the UAE, the Kingdom of Saudi Arabia, Qatar, the United Kingdom and Jersey (Channel Islands), and representative offices in India, Iran and Singapore.

For more information about Emirates NBD, please visit www.emiratesnbd.com.

Disclaimer: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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