Gold Drops on Speculation Fed Will Slow Stimulus; Silver Falls
Comment of the Day

September 04 2013

Commentary by Eoin Treacy

Gold Drops on Speculation Fed Will Slow Stimulus; Silver Falls

This article by Nicholas Larkin and Glenys Sim for Bloomberg may be of interest to subscribers. Here is a section
Fed officials will reduce the amount of debt purchases at their Sept. 17-18 meeting, according to 65 percent of economists in an Aug. 9-13 Bloomberg poll. A U.S. factory barometer unexpectedly climbed in August to the highest in more than two years, data showed yesterday.

South African gold producers are closer to a wage agreement with the union that called two-thirds of the industry's workers out on strike overnight as talks continue, a spokeswoman for the Chamber of Mines said. National Union of Mineworkers members began a strike at the start of yesterday's evening shift after the chamber failed to meet the NUM's wage demands.

Eoin Treacy's view ETF selling was one of the most important features earlier this year while Asian buying has become more important as institutional selling abated. At present the prospect of a lasting solution to some of South Africa's labour relations is making headlines. Among a large number of differing options regarding the outlook for gold it is easy to pick one's favourite argument and stick to it. However, price is the only real arbiter.

Gold had become quite overextended relative to the 200-day MA when it found support in late June near $1180. In the rally that ensued, it closed the gap with the trend mean and is now pulling back from the $1400 level. This was gold's largest rally in a year. If support is found above the June low on the current pullback, the case for a medium-term nadir will be bolstered. In the meantime, a clear upward dynamic, held for more than a day or two, will be required to question scope for some additional softness. Silver also looks susceptible to some additional consolidation having closed its overextension relative to the trend mean.

Platinum is more sensitive to South African labour relations than any other metal. Prices failed to sustain the break down from the more than 18-month trading range in June and have since rallied back to test the $1600 area which has offered resistance on a number of occasions since 2012. Today's downward dynamic suggests at least some additional consolidation of gains is likely.

Palladium has encountered resistance below $800 on three occasions this year and is now extending the most recent pullback. A clear upward dynamic would be required to check potential for additional lower to lateral ranging.

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