Gold back in black after European bailout

In the Lead: “Bear Claws”

A day of recovery was apparently in the making in the precious metals markets this morning as the complex opened solidly in the “green” against a pullback in the US dollar and amid rising optimism that Europe and its currency would live to see another day. After the worst three-day rout since the scary days of 2008 and the worst four-day slide since 1983, one would expect as much from the commodities space. The questions that remain relate to how durable today’s optimism (and buying) will prove to be. The appetite for risk was back on the investment menu and it was being reflected in 3% gains in copper and equal-sized advances in crude oil, for starters.

Spot bullion dealings opened Tuesday’s trading session with a gain of $33 in gold spot (quoted at $1,661) and with a $1.84 rise in silver (to $32.60 per ounce). Platinum and palladium joined the rally with gains of $16 and $20 respectively. The former touched $1,572 while the latter climbed to $648 the ounce. Current support/resistance levels in the metals – brought to your courtesy of the analytical team at Standard Bank (SA) are as follows: Gold support is at $1,580 and $1,491. Resistance is $1,713 and $1,754. Silver support is at $27.51 and $24.29, resistance is at $32.51 and $34.28.Platinum support is at $1,494 and $1,408, resistance is at $1,643 and $1,706. Palladium support is at $620 and resistance at $661.

The near-$80 premium in gold versus platinum was once again seen as a potential stimulant for platinum purchases by investors who recall the historical differential between the two metals. We say “potential” because as things stand right about now, the angst over global growth may keep this gap in place for possibly some time to come, and may even widen it.

Monday’s closing saw gold finishing with a more modest decline of $29 and silver ending its wild day’s ride just above the $30 mark. Technically speaking, the touching of the $1,532 price level, one nearly $400 from the September high, met the definition of a bear market (20% decline required) and very few previously imagined that the yellow metal might beat the S&P 500 to such an “achievement.” Long-time (and quite accurate) market observer James Moore (he of in London) noted that “The rise in risk sentiment has also reduced the rush to generate cash, taking the pressure off the precious metals. However, gold remains vulnerable to further bouts of liquidation.”

The intra-day and the overnight bounces from the lows have however been vigorous enough to quickly dismiss most of the conversations containing the “B” word (bear or bubble, take your pick) for the time being. It is now all about recapturing the $1,700 level so that, you know, we may progress with the reaching of the $2K target after this temporary “distraction.” This distraction has however shaken the confidence of many a soul who had sought refuge in bullion based on the urgings of the alarmist camp. Over the past week the fear-based trade has managed to induce fear into the hearts of the hitherto over-confident bulls.

Thomson Reuters technical analyst Wang Tao’s “Inside Commodity Technicals Q4 2011” sounded a fairly alarming note by stating that “A long-term uptrend for spot gold may have been violated by the depth of the recent falls, bringing an end to gold's 12-year bull run.” Using Fibonacci projections and wave-based analysis the TR technician noted that “the bull run that started at the August 1999 low of $251.70 across a period of 146 months, or roughly 12 years, has eventually come to an end.”

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