Commodity Trade Mantra

Gold Futures rise dramatically in biggest single-session since August 2011

Gold Futures

Gold Futures rise dramatically in biggest single-session

Gold Futures rallied almost 4% on Friday with prices closing sharply higher near the day’s high, scoring their largest single-session increase since August 2011 & finishing the week higher as disappointing U.S. payrolls data raised the likelihood of a fresh round of the Fed’s QE, quantitative easing. Gold for August delivery climbed $86.50 from the day’s low of $1545.50, to settle at $1,622.10 an ounce on the Comex division of the New York Mercantile Exchange. That marked the biggest single-session percentage and point gain for a most-active contract since August 2011.

I have Repeatedly Alerted of Gold Futures having strong support at $1540 levels & major weakness in the same will only commence on a sustained decline below $1540 on a closing basis, which in turn may send Gold sharply down to $1270 levels also. Only a close below $1540 will indicate a strong bearishness for Gold Futures. Given our trade call yesterday:- Gold Futures for August delivery above $1553.5 will rise to $1575, $1597 & then to $1619.2. The trading day saw Gold Futures rise to $1632. Early next week could set the tone for Gold Futures. If Gold Aug Futures maintain this momentum above $1621, it will then rise further to $1654.30 & then “possibly” to $1686.25 above a substantial resistance at $1675. Strong Bullishness seen in Gold futures, only on a strong sustained momentum above $1681.30 which may push Gold Futures to $1740.70 to $1765 also. As alerted repeatedly in the last 3 days, volatility will be seen rising in the winding down of the June contract Gold Futures. The contract goes into what’s called the delivery period. Traders who wish to maintain their position must roll forward any June contracts into further dated months. Those who stay in the June contract are subject to make or take delivery, depending on their position, but it’s rare for traders to do so.

Gold Futures gained extra strength from short covering. This is buying by traders to cover, or exit, short positions in which they had previously sold. While weekly data from the Commodity Futures Trading Commission has shown that speculators had remained net long, they also reflected a rising number of gross shorts in recent weeks. Silver July Futures prices are also closed at a technically bullish weekly high close on Friday. Silver July Futures above $28.18 will rise to $29.08, $29.62 & then to $30.61 for Monday 4th June 2012.

 After a round of lower-than-expected economic news out of China, Europe and the U.S., talk about the potential for more monetary stimulus pushed up gold futures prices on Friday and will likely keep the yellow metal supported into next week.

U.S. added just 69,000 jobs in May, the smallest net increase in non-farm payrolls in a year. The Institute for Supply Management reported Friday that conditions for the nation’s manufacturers slipped in May, with the ISM index falling to 53.5% from 54.8% in April.

Two months of disappointing jobs numbers implies a trend & screams that a significant downturn is underway putting the QE3 theme front and center. Disappointing jobs data could be the first sign of a shift of Gold back to safe-haven status. Anemic U.S. jobs growth has rekindled ideas that the Federal Reserve might eventually undertake further easing measures, sending Gold Futures back above $1,600 an ounce for the first time in three weeks. August Gold Futures gained technical momentum on the ascent, taking out Thursday’s high, the 10-day moving average near $1,573 and the 20-day average near $1,582.

Hopes for further accommodative monetary policy from the Federal Open Market Committee abated earlier this year after non-farm payrolls grew for three straight months by more than 200,000 jobs. But now, the monthly jobs gains have disappointed for three months in a row.

The Labor Department reported early Friday that non-farm payrolls climbed just 69,000 in May, when consensus expectations compiled by various news organizations had been for around 150,000 to 170,000. Further, the number of new jobs was revised downward for each of the two prior months. April jobs gains were reduced to 77,000 from an original estimate of 115,000, while new March jobs are now listed at 143,000 rather than the previously reported 154,000. The recently stronger U.S. dollar and bond markets have become “crowded” and that “value seekers” are looking for alternatives, including Gold.

Marc Chandler, global head of currency strategy with Brown Brothers Harriman, called the data “shockingly poor” and “simply terrible.” “The jobs data and revisions would seem to raise the risk of new action by the Federal Reserve as the job growth is stalling,” he said.

An extension of the Fed’s so-called Operation Twist now “may be a more realistic possibility,”Chandlersaid. Operation Twist is the term market participants use for the Fed’s Maturity Extension Program, under which it was selling short-term Treasury securities through the end of June and using the proceeds to buy longer-term securities, thereby pushing down long-term yields. The target for federal funds rate, which is the rate banks charge each other to borrow funds overnight, is already near zero.

Nomura Global Economics also said the odds of further Fed action have increased, although the firm is not necessarily expecting action at the June FOMC meeting. Nomura economists said anxiety about the outlook appears to have led many employers to put hiring plans on hold.

“Despite the weak report, we have not changed our expectations for the June FOMC meeting, in which we expect the FOMC to decide to complete the Maturity Extension Program as scheduled,” Nomura said in a note to clients. “Nevertheless, today’s report clearly raises the probability that the FOMC will decide to provide further accommodation.”

Those increased expectations for further Fed easing meant Gold traders wasted no time bidding the yellow metal higher after the jobs report.

Gold Futures for August delivery had traded as low as $1,545.50 an ounce overnight on the Comex division of the New York Mercantile Exchange and was still in negative territory a minute before the jobs report, before skyrocketing above $1610 on the news. Spot Gold was up $54.80 to $1,614.80. Gold hit its most muscular levels since May 8 at $1,619.30 in the most-active August contract and $1,617.70 for spot metal.

“People saw the figures and said ‘there will some sort of stimulus on two continents at some point,’” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. He was referring to Europe as well as theU.S.


Next week could set the stage for a new look at monetary stimulus, although market watchers said its unlikely central banks will act so fast. On Wednesday the Fed’s Beige Book of economic conditions will be released. This report is prepared in advance of the June 19-20 Federal Open Market Committee meeting and Nomura’s analysts said this report should “take on a more cautious tone when describing current economic conditions, but should not inspire a policy change at the June FOMC meeting.”

Also on Wednesday, the ECB’s Governing Council meets, Nomura noted, adding that they don’t see the ECB changing its current policy rate of 1% until there’s a better sense onGreece’s euro-area membership. They put the likelihood of a 25-basis-point rate cut at a 30% probability. The central bank may take a “significantly more dovish” tone than at the last meeting, they said.

The greatest pressure is on the ECB to act, Busch said, given the data and market reaction. The easiest is for the ECB to revive its Securities Market Program, known as SMP, where it buys bonds from eurozone nations. “We’ll find out on Monday if the ECB has already restarted SMP when the ECB releases their data,” he said.

Other actions include another round of Long Term Refinancing Operations, another bond-buying plan, and cutting rates, but he said he thinks the ECB will still drag their feet on that. On Thursday the Bank of England meets, but no policy response is expected yet, Nomura said.

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