May 31, 2011
After a near epic margin driven collapse in silver, which appears to have been largely forgotten as the metal has resumed it upward climb, it is gold which has once again regained the crown in the fiat substitute race. As Reuters reports: “The speculators are coming back, mainly driven by the European debt crisis,” said a Singapore-based trader. “Gold is likely to slowly move up during the summer unless we see big headlines, such as the U.S. raising interest rates earlier than expected.” Of course, where some see “speculators” others see rational investors who are already discounting the inevitable next step by the central planner cartel, which forced to deal with a slowing economy will have no choice but to inflate the global adjusted monetary base (and dilute outstanding fiat) by another several hundred billion. Elsewhere, in preparation for another gold breakout, the Shanghai Gold Exchange hiked gold and silver margins once again, this time preemptively. “The Shanghai Gold Exchange said on Monday it will raise margin requirements on gold forward contracts to 12 percent from 10 percent from the June 2 settlement, a move to help ward off excessive volatility in global markets during the Dragon Boat Festival holiday on June 6. The bourse will also hike silver forward contracts to 17 percent from 15 percent. It will also set gold daily trade limits to 9 percent and silver at 12 percent from June 3.” Still, the gold fixing at the close of NYMEX trading was $1,539.1, $30 away from all time nominal highs. Incidentally, would it be too much to ask of the exchanges to provide the general public with just what the formula is that they use to make their margin hike (and, reduction) decisions? They would be amazed how quickly any allegations of collusion with the administration would disappear if only a little transparency was introduced to the “system.”
And while “speculation” is always a great strawman to explain buying interest in precious metals, a far more realistic one would be that the world is once again bracing for the completely unpredictable domino effect associated with yet another spike in Greek insolvency sentiment (predictably capped by yet another Greek bank run, which is no surprise to anyone following the recent records in the CHF which has surged as more Europeans deposit funds in number Swiss bank accounts), in which the only flight to safety would be that which is not printable by global central banks. Even Kitco agrees:
“I think we’ll test the $1,600 mark sometime in the next two weeks,” said Zach Oxman, managing director of TrendMax Futures. “There are worries about the Eurozone and concerns about China slowing down. Despite the fall to $1,480, gold didn’t take the hit that silver and crude oil did.”
The debt crisis in the southern-tier European nations remains a significant factor for the markets. Greece is at the forefront of the most recent problems as concerns flared that it would not receive its next tranche of payments from the International Monetary Fund and the European Union. There are also some thoughts that China’s attempts to slow its economy are starting to take hold.
Jimmy Tintle, analyst at Transworld Futures, said the trend for gold for the past two weeks has been solidly higher and prices could easily test $1,560 next week provided there is no big news to change the trend. He is a little cautious about the markets because both the U.S. and the U.K. have three-day weekends ahead of them. Markets are closed on Monday in the U.S. for Memorial Day and in the U.K. for a bank holiday.
If prices do rise to $1,560, then gold is in striking distance of taking out the all-time nominal highs set at the beginning of the month, $1,577.40 for June gold and $1,577.70 for August gold.
Charles Nedoss, senior market strategist with Olympus Futures, said he’s “very bullish” on gold going into next week, especially given the poor performance by the U.S. dollar. The sovereign debt issue in Europe is the main support, he said. Still, he said, targeting the recent high of the $1,577 area would be “a lot of work for gold to do,” but doesn’t rule out $1,550.
As for silver, the next resistance level appears to be $40. The last time it was taken out, it took 3 weeks for the metal to make the 20% jump higher to the Hunt Bros nominal high. Any announcement out of Europe indicative that things are once again spinning out of control should be a sufficient catalyst to prompt the move higher.
This article was posted: Tuesday, May 31, 2011 at 3:55 am