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Ardent Listener
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 Posted - 06/08/2007 : 19:38:53
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News
DJ PRECIOUS METALS: NY Gold Pummeled By Rising Dollar; Stops Hit
By Allen Sykora
Of DOW JONES NEWSWIRES
Gold and silver futures tumbled sharply Friday on worries about rising bond
yields and potential for tighter monetary policy in the U.S., which helped
drive the dollar sharply higher, analysts said.
The declines in the metals were exacerbated when sell stops were triggered.
The worries about interest rates mean a pair of inflation reports may be a
key focus for the market next week, said Frank Lesh, broker and futures analyst
with Future Path Trading.
"We may consolidate the losses and wait and see if there are any real changes
and what the data tells us," he said. "We are looking at inflation data next
week."
The Producer Price Index is due Thursday, while the Consumer Price Index is
set for release on Friday.
August gold fell $14.90 to $650.30 an ounce on the Comex division of the New
York Mercantile Exchange. As pit trade was closing, the August contract at the
Chicago Board of Trade was down $13.80 to $651.60.
Comex July silver fell 44 cents to $13.04. As it was closing, CBOT July
silver was down 45.4 cents to $13.02.
"This might be a knee-jerk reaction to yesterday's across-the-board bond
market move," said J.B. Slear, chief executive of the trading firm
ForthWealth.com.
U.S. government securities have been weak lately. The yield on 10-year notes,
which moves inversely to the price, has tested the 5.25% level. The rising
yield is the market's way of factoring in potential monetary tightening from
the Federal Reserve.
"That simultaneously helps the U.S. dollar get stronger," Slear explained.
"And with a stronger dollar, you'll naturally have weaker gold and silver
prices."
The euro fell to a low for the day of $1.3322, its weakest level since April
4.
"There was long liquidation," said Lesh of the metals. "People are bailing
out. We have two-month highs on the buck. People are rethinking their
interest-rate scenarios for the future."
The analyst personally questions whether there will be a rate hike in the
foreseeable future, "but we're certainly not looking at any eases coming from
the Fed." He added that there is a tendency for many traders to pull out of
markets generally as a "defensive move" when price action gets "real crazy" and
"you don't know what's going to happen."
Other traders reported that the roughly $2-per-barrel drop in crude oil, as
of gold's close, also added pressure to the metals.
Sell stops were elected in August gold as it fell below the area around $657,
after a decline last month had stopped at $657.50 on May 24 and $657.70 on May
30. "In the gold when we got below those lows, we dropped 10 bucks on stops,"
Lesh said.
The market bottomed Friday at $647.80, its weakest level since March 5.
Some stops had built in July silver below Thursday's $13.43 low, Lesh said.
"But it looked like it really sold off around $13.30," he added.
Darin Newsom, DTN senior analyst, pointed out that gold and silver - plus
copper - made bearish reversals on weekly open-outcry charts. During the course
of the week, they moved above last week's highs but have since moved below last
week's lows.
"What that means is we could see some increased pressure from non-commercial
long liquidation, which normally occurs in this type of situation," he said.
"Many of these fund traders are chart-based. While they may be doing some
liquidation now, which is causing this to occur, getting a technical signal
like this can certainly spark increased selling interest."
This could be true for the gold and silver moreso than copper, since the most
recent Commitments of Traders data show that the funds are already net short in
copper but are net long in gold and silver, he added.
One of the next key chart points the market will be watching for August gold,
Slear said, is the Fibonacci 50% retracement of the bounce from the October low
to the February high. This chart level comes in at $645.80 and roughly
coincides with the low of $647.20 hit on March 5.
"It's a very strong bottom," Slear said. But should this level fail, the next
major support would not be until roughly $630, he added.
The 50% Fibonacci retracement support in the July silver would be around
$12.92. The low during May was $12.76 on May 17.
Meanwhile, July platinum settled $8.70 lower to $1,286.80 an ounce and
September palladium lost $1.85 to $370.60.
A platinum group metals trader reported that these contracts fell on
spillover from the sharp plunges in gold and silver.
"But consumer and end-user support has been pretty strong in platinum," he
continued. Price dips were used as a buying opportunity.
The metal also continues to draw some fundamental support from the labor
uncertainty in South Africa, where most of the world's platinum originates but
with labor negotiations occurring that potentially could lead to strikes and
supply disruptions.
Palladium held up with platinum but was considerably quieter and is more
vulnerable to the downside, should the selling in other metals continue, the
contact said.
Settlements (includes open-outcry and electronic trading):
London PM Gold Fix: $655.25 versus $688.75 Thursday
Spot gold at 1:46 p.m. ET: $647.10, down $12.95 from
previous day; Range: $644.25-$661.75
August gold (GCQ07) $650.30, down $14.90; Range $647.80-
$665.90
July silver (SIN07) $13.04, down 44 cents; Range $12.97-
$13.55
July platinum (PLN07) $1,286.80, down $8.70; Range $1,283-
$1,299
September palladium (PAU07) $370.60, down $1.85; Range
$369-$373.50
-By Allen Sykora; Dow Jones Newswires; 541-318-8765;
allen.sykora@dowjones.com
(END) Dow Jones Newswires
06-08-07 1458ET
Copyright (c) 2007 Dow Jones & Company, Inc.
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Gold Pummeled by Rising Dollar
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