Daily Metals Commentary Tuesday December 28, 2010 www.nsfutures.com We welcome those who are interested in managed futures/options programs to visit our site at http://www.nsfutures.com/managed.cfm. PRECIOUS METALS COMMENTARY 12/28/10 THE BULLS HAVE CONTROL AND SHOULD BE ABLE TO MAINTAIN CONTROL OVERNIGHT CHANGES THROUGH 6:05 AM (CT): GOLD +16.70, SILVER +40.00, PLATINUM +15.60 London Gold Fix $1384.00 N.A. LME Copper Stocks 370,725 tons Unch Gold Stocks 11.653 million ounces -994 ounces, Silver Stocks 105.109 million ounces unch ounces NYMEX METAL REPORTS WERE NOT RELEASED, DUE TO WEATHER IN THE NEW YORK AREA. HOWEVER, REPORTS WILL RESUME THIS AFTERNOON AT THEIR NORMALLY SCHEDULED TIME. OUTSIDE MARKET DEVELOPMENTS: While equity markets in Asia were generally weaker, stock indices in Europe are generally stronger during overnight trading. Early indications are for the US stock market to open moderately higher this morning. The Dollar is lower against most of the major currencies during overnight trading. The President of South Korea called on national solidarity against aggression from North Korea. Provinces in central China could see power shortages next month. The Japanese CPI during November was down 0.5% year- on-year, smaller than expectations. Japanese Industrial Production during November was up 4.2% year-on-year, higher than forecasts. US economic numbers today include a private survey of Home Prices at 8:00 AM, the Richmond Fed Manufacturing survey along with a private survey of Consumer Sentiment at 9:00 AM, and several private surveys of store sales released during the morning trade. The Treasury will also auction 5-year notes this morning, with the results announced at 12:00 PM. GOLD GOLD MARKET FUNDAMENTALS: February gold in the early action today has managed a quasi upside breakout on the back of a gap down failure in the US Dollar. The market might also be catching a lift from a series of favorable 2011 price forecasts from analysts, which are generally touting the metals to perform strongly. With indications of strength in equities early today, it is possible that macro economic sentiment has shifted from the doldrums back toward a growth view. With grain prices remaining strong and crude oil prices yesterday venturing back toward the $92.00 level, the overall attitude toward physical commodities seems to have gotten back on a positive track again and that could cause some players to anticipate inflation conditions ahead. It is also possible that concerns for weakness in the Case-Shiller data later this morning, could prompt some flight to quality type buying of gold. The Commitments of Traders Futures and Options report as of December 21st for Gold showed Non-Commercial traders were net long 229,900 contracts, a decrease of 11,524 contracts. The Commercial traders were net short 277,582 contracts, a decrease of 13,562 contracts. The Non-reportable traders were net long 47,682 contracts, a decrease of 2,038 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 277,582 contracts. This represents a decrease of 13,562 contracts in the net long position held by these traders. With the COT report showing a modest leveling of the net spec long position in gold, the Dollar markedly weaker and what appears to be an improvement in overall macro economic expectations, the bull camp looks to start the second trading day of the week out on a definitive upward bias. We suspect that February gold will manage to rise above the even number $1,400 level, with little in the way of solid resistance seen until $1,405 and perhaps not even until $1,408.90. Critical support in the February gold contract moves up to the $1,393 level, with a longer term trend line support point moving up to $1,373. On Wednesday, the up trend channel support line in February gold moves up to $1,375.50. SILVER SILVER MARKET FUNDAMENTALS: The March silver contract is showing signs of an upside breakout on the charts, with the highest trade since December 21st seen overnight. Like gold, the silver trade seems to be catching a lift from a noted slide in the Dollar and mostly positive 2011 commodity price forecasts. In a story that could have pressured silver prices in a quiet market, Fresnillo (a large Mexican silver miner) forecast their silver production to rise sharply next year in the wake of a series of mine expansions. Fresnillo also predicted they would become the world's largest silver producer and that Mexico would also become the largest silver supplier. The company targeted silver production to potentially rise above 42 million ounces in 2011. Silver might see changes to Chinese silver export levels as a positive development as China has recently announced reductions in rare earth exports. The Commitments of Traders Futures and Options report as of December 21st for Silver showed Non-Commercial traders were net long 32,342 contracts, an increase of 173 contracts. The Commercial traders were net short 50,273 contracts, a decrease of 1,033 contracts. The Non-reportable traders were net long 17,932 contracts, a decrease of 1,206 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 50,274 contracts. This represents a decrease of 1,033 contracts in the net long position held by these traders. The silver market has a positive tilt to start and it would appear that a quasi physical commodity buying wave might be seen in the face of a sliding Dollar and rising equities. As suggested already, the silver market also seems to be getting a lift from lofty 2011 price forecasts and that could cause some traders to buy out of fear of missing an upward adjustment in prices. In short, there might be little resistance seen in the March silver contract until even numbers of $30.00. However, in the event that grains, energies and copper prices all manage noted range up moves and the Case-Shiller numbers don't trip up economic sentiment, March silver could cut through the $30.00 level with ease. METALS TECHNICAL OUTLOOK: Note: Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. COMEX GOLD (FEB) 12/28/2010: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's close below the 9-day moving average is an indication the short-term trend remains negative. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside target is now at 1367.8. The next area of resistance is around 1391.4 and 1396.3, while 1st support hits today at 1377.2 and below there at 1367.8. COMEX SILVER (MAR) 12/28/2010: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. A negative signal for trend short-term was given on a close under the 9- bar moving average. The market has a slightly positive tilt with the close over the swing pivot. The next downside target is now at 2864.4. The next area of resistance is around 2956.7 and 2973.3, while 1st support hits today at 2902.3 and below there at 2864.4. Futures and options trading involve substantial risk. The valuation of the futures and options may fluctuate, and as a result, clients may lose more than their original investment. 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