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TDS: Index Rebalancing Could Give Gold, Silver Short-Term Boost

Friday January 3, 2014 2:08 PM

The upcoming commodity index rebalancing could prompt gold and silver to extend their current rallies next week, as new gold and silver demand materializes from the re-weighting and due to short covering by specs, says Bart Melek, head of commodities strategy with TD Securities. The Standard & Poor’s GSCI index will increase its gold weighting by 0.44% ($352 million) and its silver weighting by 0.11% ($88 million), TDS reports. The Dow Jones-UBSCI index will increase its gold representation by 2.0% ($1.41 billion) and its silver share by 1.0% ($729 million). TDS calculates that the indexes will need to add derivative contracts equivalent to some 1.42 million gold ounces during the five-day roll period, or 285,000 ounces a day, plus about 40.5 million silver ounces, or 8.1 million a day, in order to match the weighting increases for the two indexes. The rebalancing for both commodity indices occurs in January, with the GSCI commodity index starting on Jan. 8 for five days and the DJ-UBSCI commodity index starting on Jan. 9 for five days. “While these purchases will not change the long-term fundamentals of the Comex market and certainly not the physical gold and silver market, and acknowledging that this will also represent a very small share of total daily trading activity during the rebalancing period, there could be a material price impact nonetheless,” Melek says.

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

 

Platinum Could Trade On Own Merits, Break Away From Gold – optionsXpress

Friday January 3, 2014 9:00 AM

If the continued global economic recovery surprises to the upside in 2014, platinum could start to trade on its own merits and finally move out of the shadow of gold, says optionsXpress. During the latter part of 2013, long liquidation in gold spilled over into platinum and palladium despite supply/demand fundamentals that are not bearish for the latter two metals, the firm says. “Platinum supplies are not expected to keep up with demand in 2014, with analysts estimating a supply deficit of between 400,000 and 500,000 ounces in 2014,” optionsXpress says. “An expected increase in automotive demand…is expected to increase platinum’s usage in catalytic convertors, with rising pollution levels in major Chinese cities forcing the Chinese government to begin to deal with air-pollution problems, which would likely be bullish for both platinum and palladium demand in the coming years.” Views on the supply side of the equation are more mixed, optionsXpress adds, citing potential for strikes in South Africa and also limited supplies due to low prices, but with recycled supply preventing platinum inventories from falling to critically low levels.

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

 

CME Group Metals Volume Dips 3% Year-On-Year In December

Friday January 3, 2014 9:00 AM

CME Group metals volume in December averaged 276,000 contracts per day, down 3% from 284,000 in December 2012, the exchange operator reports. Sequentially, the drop was a larger 27% from average volume of 379,000 contracts in November, although December typically results in lighter volume as traders square books ahead of year-end and due to the holidays. Meanwhile, volume for the fourth quarter averaged 317,000 lots. This was down 2% from 324,000 in the fourth quarter of 2012.

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

 

INTL FCStone: Base Metals Weaker After Chinese Service-Sector PMI

Friday January 3, 2014 9:00 AM

Base metals on the London Metal Exchange are on the defensive following a report showing that the service-sector Purchasing Managers Index in key commodity consumer China fell to 54.6 in December from 56 in November, says Edward Meir, commodities consultant with INTL FCStone. “LME markets are down rather sharply across the board, with particular weakness noted in zinc, lead and tin-- all three being recent high fliers,” Meir says. “The selloff has been triggered by yet another soggy release out of China, with this time a report out overnight showing that service activity fell to a four-month low in December.“ As of 8:52 a.m. EST, tin was down 2.4% to $21,550 a metric ton, zinc was down 1.7% to $2,040 and lead fell 1.2% to $2,195.50. Copper, aluminum and nickel were also softer.

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

 

Gold Prices Could Slip Next Week As Normal Trading Resumes – INTL FCStone

Friday January 3, 2014 8:51 AM

Gold prices have risen over the past few trading sessions, but Edward Meir, commodities consultant at INTL FCStone, says the yellow metal may weaken next week as more people return to their trading desks following year-end holidays. He says the recent gains in gold are surprising. “If anything, gold should have been under considerable pressure this week given that global macro readings seem to be improving, particularly from the U.S. and Europe. In addition, the dollar has been pushing higher over the last two trading sessions and crude oil prices have also been quite weak, losing almost $3 a barrel on Thursday as Libya pre­pared to restart a major oilfield…. We cannot attribute the strength in gold to weakness in U.S. equities either, as gold was already trading higher well before the U.S. market opened. All in all, we suspect that the array of variables stacked against gold -- assuming they stay in place -- will likely pressure prices heading into next week when more participants return from the holiday break,” he says.

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

 

Winter Storm In Northeast U.S. Could Contribute To Light Trading Conditions - BBH

Friday January 3, 2014 8:51 AM

The northeastern part of the U.S. is being hit by a winter storm and that could result in light trading volume in New York markets, says Brown Brothers Harriman. “Trading conditions have yet to return to normal after the holidays, but the winter storm hitting the northeast of the U.S. will ensure even thinner conditions,” they say. About two feet of snow fell north of Boston and major highways in New York and Pennsylvania were closed.

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

 

Markets To Watch Fed Chairman Bernanke Speech –BNP Paribas

Friday January 3, 2014 8:51 AM

Markets will focus on a speech by Federal Reserve Chairman Ben Bernanke at a conference in Philadelphia, who is speaking along with other Fed governors, says BNP Paribas. “Bernanke may again stress the likely time lag between (quantitative easing) exit and actual policy tightening, but markets are likely to continue to look through this message and focus on the likely steady reduction at asset purchases following each meeting,” they say. There are few slated economic data releases for Friday. Firmer manufacturing data from the Institute for Supply Management Thursday continues “to meet the thresholds necessary to support expectations for continued Fed tapering,” the firm says, and stability in the two-year note yield at 38 basis points supports the U.S. dollar versus  the lower-yielding currencies.

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

 

Current Gold Market ‘Vibe Is A Bullish One’ – MKS

Friday January 3, 2014 8:51 AM

Gold prices have risen over the past few days, and Alexander Thorndike, metals dealer at MKS (Switzerland) SA, says “the current vibe is a bullish one in our opinion.” Gold speculators have been short and Thorndike says some may be nervous holding onto bearish positions ahead of the Chinese New Year holiday, a seasonal period of high demand out of Asia. “What has been interesting is that even the positive U.S. data has not perturbed gold's move higher over the last few days. Perhaps with the market now adapting to the thought of ongoing QE (quantitative easing), and uncertainty diminishing, those rushing in to sell may be a little more cautious,” he adds. Gold breached a “decent” downtrend line dating back to October, he notes. “Next major target to the topside lies around $1,250 for gold, where the October low and 50-(day moving average) intersect. On the downside, we will likely see support at $1,225 and again at $1,190 and major support still sitting at $1,180.”

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

 

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