Gold and Silver futures tumbled sharply and hit fresh two-month lows. Gold Prices sank below $1,700 an ounce as U.S. payrolls in October rose more than forecast. The US Dollar headed for the biggest gain since July 20 (mostly on short covering) against a basket of currencies which in turn helped to sink most raw commodity markets, including Gold and Silver. The Euro has bottomed so far at $1.2848, down from $1.2942 late Thursday as weak Eurozone manufacturing data is weighing on the euro. Further, Greek uncertainty after a Supreme Court ruling against pension cuts is also hurting sentiment toward the Euro. The $1.2800 level is likely to offer strong support for the euro, while the 200-day moving average comes in near $1.2830. A government report showed a net 171,000 workers were hired after a 148,000 gain in September that was more than estimated. The September non-farm payrolls figure was also revised up by around 30,000. Comex Gold futures for December delivery tumbled 2.3% to $1,674.80 & closed at $1,675.20, the biggest drop for a most-active contract since June 21. Silver Dec Futures plunged 4.3% touched $30.815 & settled at $30.857 an ounce, the biggest fall since June 21. The dip below $1,700 in Gold Prices triggered huge numbers of pre-placed sell-stop orders as alerted of a couple of trading days earlier. MCX Gold Dec contracts declined sharply to Rs. 30,366 from Rs. 30,933 / 10 gms & MCX Silver Dec Futures sank from Rs. 59,560 to Rs. 57,400 / Kg. Gold and Silver declined sharply to expected technical support levels. The long-term fundamentals will drive the Gold and Silver market prices higher in the coming months and particularly because November is one of the strongest months for both Gold and Silver. The next few months are now expected to be strong for Gold and Silver & the markets may see another intermediate peak coming soon.
The Gold and Silver markets seem to have priced in a Mitt Romney win even before the elections are held. The weakness in the Gold and Silver prices may continue somewhat into early next week, but with the US Presidential Elections finally happening could alter activity & reverse the movements for the rest of the week & coming months, Irrespective of the Outcome. No matter who wins on Tuesday, Bernanke’s term ends in 2014 only & he may step down at that time anyway. Now, if Romney does actually win, Gold may not show any further weakness & in fact may start rising in on the fact that the Fiscal Cliff (expiry of Bush tax cuts) and/or the debt ceiling issues may get into hot waters with the Fed & the new President not able to agree on most issues & their resolutions, triggering one of the most feared case of civil unrest. Even if they do manage to quit the political squabbling and achieve a degree of consensus, the scale of the fiscal problems in the US in terms of the national deficit & massive unfunded liabilities seem insurmountable. Once the markets begin to focus on that again, the dollar will come under pressure & that I think, bodes well for both Gold and Silver in the final two months of this year and into 2013.
But if in case Obama does win, Gold and Silver may actually rise vertically amid very swift sharp volatility. So finally it boils down to – Whoever be the Presidential winner, Gold will anyways win. Also the longer-term fundamentals of negative real interest rates, global stimulus and the debasing of fiat currencies will be supportive of Gold prices.
Traditionally demand for jewelry in Asia, particularly from India, has been a fundamental driver of Gold Prices in November. We’re soon coming into that phase of the month and then obviously more recently since the liberalization of the Chinese Gold Markets, the Chinese demand coming into the Chinese New Year is another factor that people are believing is exerting pressure on the price coming into year end. Indians are the largest owners of Gold in the world. But China on the other hand has a similar population of nearly 1.3bn people if you include the Chinese Diaspora and its interesting because the per capita consumption of those 1.3bn people is increasing very sharply but from a near zero base because they were banned from owning gold from 1950 to 2003. Their per capita ownership levels of gold are still nowhere near the levels seen in India. So it is believed in time that they will reach levels seen say by their compatriots in Hong Kong and by expats in Singapore and around Asia. Gold is very deeply ingrained in the Chinese psyche because of their experience of hyperinflation within the lifetime of many Chinese people.
Commodity index re-balancing will mean buying of Gold and Silver around year-end and early next year, says UBS. The DJ-UBS Commodity Index re-balances from the fifth to ninth business days in January, with selling of the previous year’s out-performers and buying the under-performers The index released re-weightings last week. “Broadly speaking, Gold and Silver will be bought. In gold’s case, its weight will be raised to 10.82% from 9.79% and silver will increase to 3.90% from 2.77%,” UBS says. Traders typically trade the re-balancing expectation ahead of time. “Last year was a classic example: gold’s weighting was to be revised lower and investors sold gold heavily as December closed, partly due to this variable,” UBS says. “This year, however, is quite different, and both Gold and Silver index-related buying should offer some extra firepower for a year-end rally and help extend strength into the New Year.
Base Metals however did not see any major downward movements on the notion that if world economies are indeed on the upswing then worldwide demand for raw commodities will increase. Improved Chinese demand prospects may be signaling better times for commodities ahead, including Precious & Base Metals. China is a key consumer for many commodities, from Copper and gold to oil, as disposable incomes rise and the Chinese develop their infrastructure. A Thursday report showed the official Purchasing Managers Index was above 50 in October, signaling expansion in the manufacturing sector. Also, further stimulus measures are likely after a transition of power in China this month. Hong Kong’s Hang Seng stock index notched a 15-month high Friday, as Asian markets reacted to the improving U.S. economic data coming out of the U.S. on Thursday. There will be a heavy news cycle next week, with the US Presidential Elections on Tuesday, a Group of 20 meeting which starts over the weekend and lasts until Tuesday, central bank meetings from the Royal Bank of Australia on Tuesday, the Bank of England and the European Central Bank on Thursday, and finally China’s leadership change. Once markets have digested the US election news, Chinese politics will probably take center stage. The 18th party congress starts on Thursday and is likely to run for a week. It will set new policy direction and elect new leaders for the next five to 10 years. Lead may have the strongest fundamental backdrop among the Base Metals traded on the exchanges. In the first half of the year, visible Chinese refined stocks fell to a two-year low, amid surging battery production. In the second half, the market became tight globally, with a supply deficit of 28,000 for the final six months of the year. Chinese battery and E-bike production remained strong in September. Lead markets in the U.S. and Europe have also tightened. Demand from battery producers for the auto and telecoms sectors has picked up in H2. Increased output of home appliances in China bodes well for copper, helped by demand around holidays in the country. While physical traders report that spot copper sales remain weak, the continued improvement in the downstream sector increases the chance that restocking will help to lift copper demand. Commodity prices should get a boost from improved apparent demand, restocking and the fact that supply is relatively price inelastic. As such, any correction that takes prices below support levels should be seen as a buying opportunity for the longer term.
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