Gold not trading like a safe haven asset, says Emirates NBD Precious Metals report
Source: Precious Metals, Emirates NBD , Author: Gerhard Schubert
Posted: Sun June 10, 2012 10:16 pm

UAE. Emirates NBD, the United Arab Emirates biggest lender by assets, has released the latest weekly Precious Metals Report.

Week review

The US trade deficit fell in April by 4.9 per cent to 50.1 billion dollars, compared with the March figures this year.

The 19 largest US Banks need to raise at least 50 billion dollars in new capital in order to satisfy the recommended Basel III rules, which will be phased in beginning in 2013.

Rating agency Fitch downgraded Spain by three notches to BBB. The Spanish 10-year bond auction was successfully concluded and oversubscribed. The yield rose to 6.044 per cent, up from 5.743 per cent paid in April 2012.

In 2012 the German industrial production fell 2.2 per cent in April, compared against the March figures. Rating agency Moody's downgraded six German and three Austrian banks.

The Indian rupee finished the week at 55.42.

China cut rates by 0.25 per cent, the first rate cut since 2008.

Greece will go again to the polls, next Sunday, 17th June 2012.

Gold: US$1,593.50 – down US$31.50 from last week.
The Commitment of Traders Report (COTR) for the week ending Tuesday, May 29, 2012, shows a massive increase of long positions, and a reduction of short positions. These figures are from close of business, Tuesday, June 5, 2012 and it has to be expected that a lot of these new long positions have already been stopped out, since Mr. Bernanke`s testimony to the US congress committee on Thursday, June 7, 2012 and the resulting selloff in gold.

The week started well with gold able to hold the US$1,620 level and gold managed to rally up to US$1,638 before profit taking was visible. The testimony from FED chairman Ben Bernanke to the committee was exactly as we expected it to be: non-committal and keeping all options open. He explicitly said that no options are off the table but he failed, in many analysts’ view, to specifically mention QE3.

This led to a very quick sell-off on Thursday evening, which was amplified by further selling during the early morning on Friday in Asia. Gold traded in one large sweep (approx. 300k) from US$1,585 down to US$1,557 before starting to recover. Gold managed to climb back up, first to unchanged on the day, then finished the day higher and the week at US$ 1,593.50.

Gold does not trade and act like a safe haven asset at all, it moves and acts like other asset classes with a sharply increased volatility.

The timetable for the next couple of weeks is that Greece goes to the polls next Sunday. The next FED Federal Open Market Committee (FOMC) meeting will take place on 19 and 20 June. The G20 meeting in Mexico will take place on 18 and 19 June.

Option volatilities midrates : Gold atm (at the money)
1 month 19.50 % down 2.50 %
3 month 21.00 % down 2.00 %
6 month 22.75 % down 1.50 %
1 year 24.75 % down 0.75 %
Premium 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US$ 0.50
EFP Spot Gold to August Comex: US$ 0.94
ETF: Holdings are at 2,490 tons
Support: 1,525 and 1,480 Resistance: 1,640 and 1,665

Silver: US$ 28.50 – unchanged from last week.
A number of new long positions in silver have been added, according to the Commitment of Traders Report (COTR). Silver traded all week in the wake of gold initiated moves. Silver rallied up towards US$ 29.70 before falling back to US$ 27.95 level on Friday early morning. The close at US$ 28.50 for the second week in a row further confirms that silver does currently not have a “life” of its own and simply mimics other metals moves. The savvy and strong investor might still favour silver as the traded volatility in silver outclasses all the other precious metals.

Option volatilities midrates : Silver atm (at the money)
1 month 32.50 % down 2.00 %
3 month 34.50 % unchanged
6 month 35.00 % unchanged
1 year 36.00 % up 1.00 %
EFP Spot Silver to July Comex: US$ minus 5.50 cents
ETF: Holdings are at 15,005 tons
Support: 27.25 and 26.77 Resistance : 30.00 and 30.60

Platinum: US$ 1,430 – down US$ 10 from last week.
The discount to Gold has decreased to US$ 163. According to the Commitment of Traders Report (COTR), new long positions have been established, whilst a small increase of short positions have also been monitored.

All the moves this last week were guided by the gold price action and platinum managed to close the week in the middle of the short term trading range. There are plentiful of signs about a potential slowdown in the Chinese economy, but the US automotive industry is holding up reasonably well. This might stifle a price move for platinum in the near term. These current “low” price levels might not be sustainable for the South African producers in the longer term, but mine closures and mothballing of operations seem to be politically impossible to implement.

Option volatilities midrates: Platinum atm (at the money)
1 month 21.50 % up 2.00 %
3 month 24.00 % up 3.00 %
6 month 24.50 % up 2.25 %
1 year 25.50 % up 1.00 %
EFP Spot Platinum loco Zurich to July NYMEX: US$ minus 0.50
ETF: Holdings are at 46 tons.
Support: 1,385 and 1,340 Resistance : 1,470 and 1,510

Palladium: US$ 613 – up US$ 3 from last week.
The latest COTR report shows that both, new long positions, as well as new short positions were absolutely tiny. All the reasons mentioned for platinum also apply for palladium, but palladium was the only precious metals which was actually able to register gains over the course of the week. The medium to longer term outlook for palladium looks quite positive with the supply and demand fundamentals switching from a surplus metal to a deficit metal, but especially the outlook for the Chinese economy will be vital for further price movements.

The Chinese government is still considering stimulus action which involves positive aspects for the Chinese automotive industry but there are also signs, according to other analysts, of increasing warehousing of palladium stocks.

Option volatilities midrates: Palladium atm (at the money)
1 month 26.00 % unchanged
3 month 27.00 % up 0.50 %
6 month 28.25 % unchanged
1 year 31.00 % unchanged
EFP Spot Palladium loco Zurich to September NYMEX: US$ 0.45
ETF: Holdings are at 65 tons
Support: 595 and 580 Resistance: 635 and 650

Note: This is the Precious Metals Report for June 9, 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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