Gold and silver falling as dollar rockets

In the Lead: “Sell Everything”

Chinese May import-export volumes exhibited patterns that were regarded as indicative of weakness and of slowing domestic demand. As well, there seemed to be a softening of demand for Chinese-made goods in overseas markets on the back of the apparent rough patch that the global economy is hitting mid-cycle at this time.

Aside from the Chinese news, there was not much to report in the markets other than on-going wrangling regarding the restructuring of Greek debt (Germany insists that the private sector play a role in same) and the fact that South Korea unexpectedly raised interest rates overnight.

The more pressing problem for China is not as much the shrinking trade gap, but, rather, it will once again be contained within the release of consumer inflation data due on Tuesday. Analysts expect CPI to come in at its highest reading in three years, and for it to run at or above the 5.4% level. China’s leadership might thus be prompted to take additional actions intended to slow the robust spiral in prices.

Tired gold bulls went to work this morning but were unable to lift the yellow metal as the US dollar made further progress to the upside in the wake of on-going perceptions that a Greek default remains all but inevitable. As well, the market appears to still be suffering from the after-effects of the apparent unwillingness of the Fed to keep the commodities’ party running “after-hours” via the generous extension of another QE gift.

Spot gold dealings opened Friday’s session with a $3.70 per ounce loss and a quote on the bid-side at $1,540.60 in New York. The greenback was trading at 74.31 on the trade-weighted index at the same time. The losses soon deepened and the yellow metal retreated to near $1,525.00 per ounce, losing more than $18 in the process, as pre-weekend book-squaring and a whopping $2.68 pullback in black gold despite OPEC projections of a supply gap for later this year, added to selling pressure.

Silver initially fell 20 cents to open at the $37.37 mark per ounce. The selling that emerged in the gold pits spilled over to silver and the latter dropped 117 cents to $36.31 in the first two hours of trading action. Both the yellow and the white metal appear to be digging into a confined “summer doldrums” trading channel and might need sizeable external developments to generate a breaking of such a pattern.

The recently dissipating momentum (amid rising prices) in gold has brought the $1,555 mark into focus as a new resistance level. Other analysts go beyond the perception of a bearish divergence at this juncture and they perceive a possible bearish or “truncated” gold top shaping up, should gold not be able to penetrate above the $1,551 level with success.

Platinum and palladium also declined in the initial minutes of trading in New York. The former lost $20 to ease to the $1,817.00 level while the latter fell $10 to be quoted at $804.00 on the bid-side per troy ounce. Support in platinum at this time is thought to be found near the $1,820 mark and at the $800-805 level for palladium.

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