Kitco Market Nuggets

Market Nuggets: Gold’s Drop May Make It Attractive To Long-Term Buyers – optionsXpress

25 August 2011, 1:30 p.m.
By Kitco News
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(Kitco News) -- Relatively benign economic data over the past week appears to have quelled the doomsday mentality for equity traders, at least for now, pressuring gold, says Rob Kurzatkowski, senior commodity analyst at optionsXpress. “The parabolic move higher and subsequent sell-off in prices could bring prices down to more realistic levels. The sell-off, at least on the surface, does not appear to be a harbinger of the end of the bull market,” he says. The next bit of news will come Friday during Fed Chairman Ben Bernanke's speech in Jackson Hole. “A sustained rally in equity prices could mean further declines, whereas a fresh round of negative economic data could take some of the selling pressure off the Gold market,” he says. Kurzatkowski suggested traders looking to get back into gold may want to use Fibonacci retracement levels to gauge support.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

Market Nuggets: BNP Paribas: Aluminum To Fare Better Than Other Base Metals In Weak Economy

25 August 2011, 11:59 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Aluminum remains a so-called defensive play among the base metals in the event of a prolonged period of risk aversion, says BNP Paribas. The metal fell by only 12% from late July to early August, compared to 20% for some base metals. The bank’s forecast for world demand growth remains at 9% for 2011, then shaved for 2012 to 7.5%-8% from 8.5%, although with risks “increasingly on the downside.” One factor helping underpin aluminum is the rise in the average cost of production from a year ago.  Much aluminium inventory is tied up in warehouse financing deals, but BNP says it would be “loathe” to make a bullish case for aluminium based on this.
“But they do at least, for now, largely neutralise the bearish implications of excess stocks,” says a report from senior metals strategist Stephen Briggs. “And there are other factors more convincingly in aluminum’s favor. The industry cost curve suggests the downside is very limited and points to higher prices by 2013, as long as demand stays firm. We remain convinced that the potential downside is far more limited for aluminum than for other base metals, even, and perhaps especially if the world economy takes a serious turn for the worse. In a more benign environment, aluminium may remain more sluggish than most, but we expect the price direction to be broadly upward.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: VM Group: Gold Remains Buoyed By Economic Conditions In U.S., Europe

25 August 2011, 10:56 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Gold should be buoyed with economic conditions set to worsen in both the U.S. and Europe and with emerging-market economies set to slow in response to falling exports, says the August Metals Monthly report put out by VM Group and ABN AMRO. “Should cracks in the global financial system begin to appear, perhaps in the form of a European banking crisis, or if the Fed moves to launch a further round of quantitative easing, gold will see little resistance in its summit of the highly psychologically significant threshold of $2,000/oz,” the report says. “Add in the potential for more credit rating downgrades on either side of the Atlantic and gold will continue to fire on all cylinders.” For the short term, analysts look for London p.m. gold fixings mostly in the area of $1,830 to $1,940 an ounce over the next month. Meanwhile, analystslook for gold to average $1,981 in 2012, $2,160 in 2013, $2,219 in 2014 and $2,253 in 2015.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:VM Group: Silver To Follow Gold Higher But Lag

25 August 2011, 10:56 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Silver is likely to follow gold higher but perhaps not rise as quickly in the short term, says the August Metals Monthly report put out by VM Group and ABN AMRO. The gold/silver ratio has risen from earlier in the year—meaning outperformance by gold—on worries that weaker economic growth will dent industrial demand for silver. “Silver will ride gold’s coattails and yet uncertainty over the outlook for global growth will result (in) tamer overall price gains relative to earlier this year,” the report says. “A widening of the current economic slowdown could lead to a further rise in the gold:silver ratio as investors’ risk aversion heightens, leaving gold the more favorable option. Silver is nevertheless set to continue its rally over the remainder of this year, specifically in light of an increasing likelihood of the emergence of fresh Fed easing as well as possible interest-rate cuts by the European Central Bank and People’s Bank of China before year end.” For the short term, analysts look for London fixings of $39.50 to $45.50 an ounce over the next month. Meanwhile, analysts look for silver to average $51.15 in 2012, $54.56 in 2013, $60.79 in 2014 and $66.44 in 2015.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: VM Group: Platinum Group Metals May Be Range-Bound In Coming Months

25 August 2011, 10:56 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Platinum group metals could be range-bound in the coming months due to their dual roles as industrial and precious metals, says the August Metals Monthly report put out by VM Group and ABN AMRO. “Although they proved fairly resilient during the last global downturn, growth in the fast-growing and key auto markets in the developing world is likely to be less robust this time around,” analysts say. “PGM prices have already shown signs of struggling over the course of this year on elevated fuel prices, the fallout from the Japanese tsunami, and wider uncertainties over a double- dip recession.” However, the economic backdrop “has never been more positive” for the investment appeal of precious metals generally as a safe haven and in terms of currency hedging, analysts say, thus “PGMs could easily remain range-bound in the coming months, pinned between opposing bullish and bearish factors.” Analysts’ forecasts call for London p.m. platinum fixings of $1,815 to $1,910 over the next month, with palladium fixings anticipated between $730 to $815. Longer term, analysts’ forecasts call for platinum to average $2,009 in 2012, $2,058 in 2013, $1,994 in 2014 and $1,900 in 2015. Palladium is forecast to average $907 in 2012, $1,069 in 2013, $1,195 in 2014 and $1,323 in 2015. Looking down the road, analysts say platinum will fare worse due to incremental replacement by palladium in gasoline-based auto catalysts.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: VM Group: Chinese Demand Enables Copper To Avoid Steeper Decline

25 August 2011,10:56 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Chinese demand has enabled copper to hold up better than otherwise may have been the case, says the August Metals Monthly report put out by VM Group and ABN AMRO. Prices fell as much as 11% from the end of July to mid-August, yet remained “stubbornly high” on expectations China would soon return as a “prolific importer” of refined metal, analysts say. They point out that stocks held in Shanghai Futures Exchange warehouses fell for the first time in six weeks during the week ending Aug. 19, in line with reports of drawdowns in bonded warehouses. Further, July refined-copper imports rose. “Without China’s demand, the copper price could be 10%-20% lower than where it is currently,” analysts say. “The copper market might well still be plagued by supply-side weakness, but in the absence of China’s demand levels, this supply shortfall is more a supply surplus. Further support by the Fed or ECB could release some downside pressure on the copper market and force China’s hand.” Analysts look for LME three-months copper of around $8,750 to $9,000 a metric ton for the next month. The longer-term forecast is for an average of $8,563 in 2012, $8,246 in 2013, $7,900 in 2014 and $7,092 in 2015.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Barclays: Gold Pullback 'Healthy Correction;' Long-Term Uptrend 'Remains Intact'

25 August 2011, 9:57 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Analysts with Barclays Capital are calling the recent sell-off in gold a “healthy correction.” They say gold Wednesday suffered its largest one-day decline since 1980 on “hefty profit-taking” despite physical buying in Asia. “However, we believe this is a healthy correction for the market, and barring further near-term weakness, the longer-term uptrend remains intact given the macro backdrop,” Barclays says. “Profit-taking emerged ahead of (a Federal Reserve conference at) Jackson Hole on Friday, and speculation over whether further quantitative easing will be announced and also following better-than-expected macro data.” Barclays previously said margin-hike requirements could contribute toward profit-taking, and the Shanghai Gold Exchange and CME Group this week both announced increases. However, Barclays analysts say they believe this “would only have a short-term effect as the bulk of investor interest in the market remains robust.” Analysts say gold holdings in global exchange-traded products fell 27.7 metric tons Wednesday but remain slightly positive for the month to date.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:Harbor: Annualized Global Aluminum Output Falls In July; Production Outlook ‘Challenging’

25 August 2011, 9:41a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Annualized global primary aluminum output fell in July for the first time in four months, says Harbor Intelligence. In analyzing International Aluminum Institute data, Harbor says that primary production slipped by 0.5% to an annualized rate of 44.3 million tons, although it was still up 8.4% from a year ago. Production in China fell for the first time in four months, offsetting some recovery in Eastern Europe, Africa and Asia, excluding China and the Middle East, Harbor says. Production in China fell by 1.7% month on month to 18.7 million tons due to output cuts induced by power rationing in some regions, mainly the Guangxi and Henan provinces. Meanwhile, output in the rest of the world increased by 0.4% for the month to 26.6 million annualized tons. “Bottom line: As we have mentioned before, if China doesn’t deliver growth, global output remains stalled at the most,” Harbor says. “The outlook for production is challenging, with 2012 looking especially dry. Outside China, there are minimum expansions hitting the market for the rest of 2011-2012. India was supposed to be also an important source of growth ahead, but at this point that is far from being a locked scenario.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:Gold Bears Have Much Work To Do To Change Trend- United-ICAP

25 August 2011, 8:51a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Gold’s break of $1,821 an ounce on Wednesday “confirms the move up from 1478 ended at 1917,” says Brian LaRose, technical analyst at United-ICAP. But bears have a lot of work ahead of them if they want to see gold’s uptrend end. “To confirm the move up from 681 ended at 1917, 1570 must be broken. To confirm the move up from 235 ended at 1917, 1295 must be broken. Expect a correction of the entire 34-1917 advance if these levels are broken,” he says.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

Market Nuggets:Fed To Clarify FOMC Statement On Friday – Nomura

25 August 2011, 8:51 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Federal Reserve Chairman Ben Bernanke will likely clarify the FOMC’s Aug. 9 downgrade of the economic outlook and the resulting decision to give explicit guidance about the federal funds rate at Friday’s Jackson Hole symposium, say analysts at Nomura. “We expect Chairman Bernanke to discuss various policy options in his presentation to the annual Jackson Hole symposium,” they say. These are the three options the bank expects he will discuss - communication strategy, more asset purchases or increase the average maturity of the portfolio, and lower the interest rate paid on excess reserves.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

Market Nuggets:MF Global Favors Refraining From Commodities Ahead Of Bernanke Speech

25 August 2011, 8:48 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global commodities analyst Edward Meir says he favors refraining from fresh positions ahead of Federal Reserve Chairman Ben Bernanke’s speech at a Fed conference in Wyoming Friday. The market response could be unpredictable, should Bernanke fail to provide the extra stimulus that some markets may be anticipating. “The tempting conclusion is to suggest a sell-off would ensue, particularly from the equity side, but the markets could easily rally as well, as investors may interpret a more measured approach as a signal that the Fed believes the economy is capable of recovering on its own--and without additional Fed tinkering,” Meir says in a daily report on base metals. At last year’s Fed conference, Bernanke prepared markets for a second round of quantitative easing. However, MF Global does not expect him to unveil anything similar this year. “For one thing, the Fed has not leaked its intentions in advance, something it did last year when it tipped off the Wall Street Journal in advance,” Meir says. “Moreover, the Fed's ability to maneuver at this stage is limited, since it is one thing to flood the economy with practically free money, but quite another to get people to borrow it, especially given the sorry state of the housing market.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:Gartman: Psychology Of Gold Market Changes But Not Fundamentals

25 August 2011, 8:43 a.m.
By Kitco News
http://www.kitco.com/

Kitco News) -- The sharp decline in gold Wednesday had the feel of liquidation, says Dennis Gartman, investor and publisher of The Gartman Letter. “All we know is that the psychology of the market has changed materially, and that those who bought gold in the past 15 or so trading sessions are in trouble and will be sellers on rallies. They really have little choice.” Gartman, who opted to pare his gold position to capture profits on the sharp run-up earlier in the week, says the gold market’s fundamentals themselves have not changed, but sometimes these alone are not enough to hold up a market. “The fundamentals of central-bank buying remain intact, as are the fundamentals of problems in Europe, and weakness in the U.S. dollar, and debt concerns et al. None of these have changed; but markets discount; markets anticipate; markets move ahead of fundamentals. And markets plunge when the fundamentals are their best, not their worst. This is a difficult lesson for most investors/traders/analysts to learn.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:MF Global: Gold Hurt By Reduced Fed Expectations, Improved Data, Margin Hikes

25 August 2011, 8:16 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global looks for gold to be on the defensive Thursday as the market continues to “dial back” any expectations for further easing pronouncements by Federal Reserve Chairman Bernanke on Friday. “Pressure will also come from improvements in economic data, recent liquidation from non-commercial traders, and the hike in margin requirements in both Shanghai and at the CME,” says analyst Tom Pawlicki. He notes pressure began to build since Tuesday after improved economic data such as the Chinese flash Purchasing Managers Index, the euro-zone services PMI and U.S. durable-goods. Still, support for gold will come from ongoing uncertainty over European sovereign debt concerns, Pawlicki says. He suggests gold could fall toward the $1,650 level over the next week or two, and a lack of fresh easing signals by Bernanke on Friday could even send gold down to $1,580.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:R.J. O’Brien Lists Gold Support at 30-Day Average, 61.8% Fibonacci Retracement

25 August 2011, 8:13a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Traders have been left wondering how far spot gold might fall after a large two-day decline on long liquidation. “For lack of a better way to judge short-term direction, traders will be looking for support levels as entry points but will be nervous of any more major fallout,” says Janet Mirasola, managing director of R.J. O’Brien & Associates. “The big ones to bear in mind come in at $1,697 (simple and old-fashioned 30-day moving average) and then more importantly $1,643, a 61.8% retracement of the rally since July (Fibonacci).” She notes the decline came after some analysts upped long-term targets over $2,000 an ounce. “The analyst style ‘rear-view mirror’ report is not unusual but can be poorly timed,” she says. “None of the reasoning that was applied to the long trade has particularly changed--gold is still more like a currency than a commodity and central bank holdings are unlikely to be sold--in fact we could now argue that sovereign governments will look to add more to their reserves if the price becomes cheaper and more attractive.” 

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets:R.J. O’Brien: Margin Hike, Technical Momentum, Sell Stops Pressure Gold

25 August 2011, 7:58 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Gold sold off heavily on long liquidation over the past two days, hurt by a combination of factors. A late-Wednesday margin hike by CME Group, technical momentum and computer-driven sales stops all contributed to the decline, says Janet Mirasola, managing director of R.J. O’Brien & Associates. As of 7:30 a.m. EDT, Comex December gold had fallen as far as $1,705.40 an ounce, representing a decline of 11% from Tuesday’s peak of $1,917.90.  “The Shiny One will stay out of favor for a while after this latest show of volatility but bear in mind that the global financial debt problems are far from being fixed and safety will be sought again,” Mirasola says. She says to “tread cautiously but look for value in an oversold situation.”

By Allen Sykora of Kitco News; asykora@kitco.com