Gold Rises after Option Expiry but May Close Lower on Week

Gold
Gold in dollars closed last night at $1092.50/oz with a gain of 0.31% on the day. Gold continued its recovery in Asian trading this morning and is currently trading at $1,097.60/oz in dollars and €820.02/oz & £11.32/oz in EUR and GBP terms respectively.

Equity markets in Asia welcomed the latest Greek deal but European indices are more tentative this morning. The euro has recovered from its recent 10 month lows against the dollar (had risen above 1.3400 by 1130 GMT) but remains under pressure versus some other currencies and gold.

It is important to remember that this is the latest in a long string of agreement announcements. The eurozone decision must be unanimous and the bilateral loans from the eurozone and the IMF will only be made available should Greece be denied a borrowing facility from the wider financial community. News of the IMF involvement was initially not welcomed by ECB President, Jean Claude Trichet who said that if the IMF or any other authority exercises any responsibility instead of the euro group, instead of the governments, this would “clearly be very, very bad.” This saw the euro fall to new 10 month lows at 1.3268. However, Trichet later clarified his remarks and said he supports the rescue deal but that they are unlikely be ever activated.

Volatility was high yesterday on COMEX option expiry. Gold tends to do very well in the days after an option expiry. There was large open interest in strikes from $1,100/oz to $1,150/oz in gold.

Gold looks set to close lower this week. This, and a weekly close below the psychological level of $1,100/oz, would have negative technical implications and could see gold fall to support at $1,060/oz. However, concerns about currency and sovereign debt markets and the increasing risk of inflation should see gold well supported above $1,060/oz and longer term support at $1,000/oz.

Gold (1 Week)

Gold also looks set for a lower monthly close (chart below). A lower monthly close will embolden the momentum traders and could see gold fall to support at $1,060/oz. However, should gold manage to make a higher close for the month of March next Wednesday then both the technicals and the fundamentals would again be favouring gold. Especially as physical demand remains robust internationally.

Gold (1 Month)

Silver
Silver, akin to gold, closed with a gain of 0.48% at $16.68/oz in New York yesterday. It is currently trading at $16.84/oz, €12.58/oz and £11.32/oz.

Platinum Group Metals
Platinum is trading at $1,598.50/oz, palladium at $459/oz and rhodium at $2,325/oz.

News
President Obama will today announce a plan to reduce the amount some troubled borrowers owe on their home loans. It comes after months of criticism that it hasn’t done enough to prevent foreclosures. The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. The people briefed on the plan declined to be identified because the details had not yet been announced.

The CFTC meeting yesterday  was something of a damp squib but may have contributed to some of the volatility seen in the market yesterday. Bart Chilton, the Democratic commissioner and proponent for position limits at the top US futures regulator said that he hopes to see curbs for speculative limits on energy and metals in place by the end of the year. He said he would like to see the Commodity Futures Trading Commission propose a rule for metals position limits by April 26 — the end of a comment period on a similar proposal for energy limits.

Russia’s Central Bank announced Friday it was cutting its key interest rate by a quarter of a point to a historic low of 8.25 percent in order to boost economic recovery. The reduction in the main refinancing rate would be effective Monday, the Central Bank said in a statement.

The US Treasury bond market has fallen in recent days as far fewer buyers than usual showed up for the US government’s sale of notes. Concerns about the costs of the new healthcare plan, the ongoing costs of wars in Iraq and Afghanistan and the massive unfunded long term liabilities are leading to concerns about a “buyers strike” where bond buyers demand higher yields leading to long term interest rates rising in value.

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Mark OByrne

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