market comment

Market Comment


12 July 2006
SHARPLY HIGHER ON HEIGHTENED SECURITY ISSUES. Precious metals surged higher on news of bombings in India, soft U.S. Dollar, firm crude oil prices and funds buying interest. Gold rebounded higher in Asia on Tuesday, erasing the losses incurred in the prior New York session and reversing the weaker sentiment. Japanese trade and investor interest bought aggressively in the market shortly after their opening, easily absorbing the few remaining pockets of institutional selling resistances that stood in the way higher, as the yellow metal surged from its opening near the low of $622.50 offered. The rally in Asia brought about some short-covering that provided added momentum to push gold to near $630 levels. The buoyant sentiment spilled over into Europe, with follow-through buying interest continuing the firm undertone and eventually piercing the $630 level to set up a strong opening in New York. The market opened steady in New York and remained steady in very quiet conditions in the early part of the session, with a relatively soft afternoon fix the only mar in the uptrend. Gold capitalised on its safe-haven allure status and took off higher when news of deadly bomb attacks on commuter rail service in Mumbai, India, broke into the market. With the bombing news as the catalyst, trade and funds subsequently turned out in force to bid the market higher with momentarily pauses at $635 and $640, with firm crude oil prices and a soft U.S. Dollar providing added impetus. Some stop-loss buying orders were triggered above $640 as gold rallied to a high of $642.20 bid and stalled to ease slightly lower to close at $641.30 bid. Although gold may expect to find support on the back of heightened security worries as highlighted by the Mumbai bombings, light profit-taking was seen to cap the rally, and brings into question the sustainability of the current rally. Should gold be able to hold onto the overnight gains and consolidate in the $640’s, it is likely to target the next level of $650. Support remains at $620. Silver was again quiet in Asia, holding in a tight range just above support of $11, despite the sharp recovery in gold. It touched a low of $11.08 offered in Asia and did not stray far from this level, until strong European buying interest emerged to boost the white metal. The buying lifted silver into the $11.30’s, with good funds buying in New York extending the move higher. The sharp rally of gold on the back of the Mumbai bombings also added momentum to silver’s rally to a high of $11.59 bid before a close just off the highs at $11.53 bid. The overall outlook for silver looks positive but resistance around the 100-day moving average of $11.67 could be seen to be stalling the move higher. Platinum climbed off its low of $1,219 offered in Asia on strong Japanese buying interests, extending into the $1,230’s on European interest and breaking above the $1,240 level on New York momentum. It managed a high of $1,241 bid on the day, with a positive outlook to extend gains above the $1,240 level in the interim. Palladium was relatively lacklustre, given the strong gains posted by the rest of the precious metals.