Daily Market Update

Iran Oil Flow Slows, Price Fears Rise – Risk of War to Support Gold

Gold’s London AM fix this morning was USD 1,655.75, EUR 1,245.86, and GBP 1,041.22 per ounce. Yesterday’s AM fix was USD 1,677.00, EUR 1,255.62 and GBP 1,052.00 per ounce.

Silver is trading at $31.84/oz, €23.97/oz and £20.05/oz. Platinum is trading at $1,630.20/oz, palladium at $639./oz and rhodium at $1,350/oz. 

Cross Currency Table – (Bloomberg)

Gold fell $18.20 or 1.84% in New York yesterday and closed at $1,663.10/oz. Gold traded sideways in Asia prior to seeing a slight climb to $1,665/oz in late Asian and early European trading prior to price falls in Europe .

Gold continues to struggle due to poor short term technicals and a slight decrease in global physical demand in recent days – particularly from India.

Gold closing below the 200-day and 100-day daily moving averages yesterday further clouded the technical picture and a weekly close below the DMAs would likely result in further price weakness. 

End of the quarter book squaring and selling and profit taking are likely contributing to the weakness. Dollar strength and equity weakness may have also lead to selling on the COMEX as speculators covered losses in equity markets.

The durable goods and future business investment numbers were poor and fell short of expectations, raising the prospect that economic growth in Q1 may be below the Fed’s and the bullish forecasters estimates. 

The poor numbers further clouded the US economic outlook and raised the prospect of continuing ultra loose monetary policies and QE which will be bullish for gold. 

Markets await more clues from US economic data. Negative US GDP and US weekly jobless claims may lead to safe haven gold buying. 

European investors will focus on the outcome of the Italian bond sale as Rome aims to sell up to 8.25 billion euros of debt. 

Clients are reluctant to buy the dip fearing further weakness and March has been poor for physical gold sales to investors and store of wealth buyers.

However, gold’s fundamentals of broad based global demand remain sound and mean that this is likely another period of correction and consolidation.

The primary characteristic of all bull markets is that they climb a "wall of worry." Gold is continuing to climb a "wall of worry" with much bearish sentiment and frequent assertions that it is a bubble.

While oil prices came down yesterday partly due to speculation that the US might tap its strategic reserves, the increasing risk of a confrontation between Iran and Israel, the US and many western powers remains real and should support oil and gold prices.

Global Commodity Prices and Data – (Bloomberg)

Iran’s oil exports have dropped in March as buyers prepare for sanctions, and shipments are likely to shrink further if Obama determines by Friday that markets can adjust to less Iranian oil and tightens sanctions even further.

Sanctions could eventually leave half of Iran’s oil output cut off from international markets, according to analysts and officials.

Iran is also being excluded from global commerce and the global economy by being locked out of the international payment system – SWIFT.

SWIFT, the Brussels based clearing house, announced last week it will cut services to Iranian banks on foot of European sanctions, in order to comply with the EU Council. The service denial includes Iran’s central bank, which processes Iran’s oil revenues. Some 30 Iranian banks will be blocked from doing international business.

History suggests that the trade, economic and currency war with Iran may soon degenerate into an actual war. Increasingly, the regime in Iran has little to lose in engaging in a more aggressive foreign policy – including attempting to close the strategically important Straits of Hormuz.

These tensions should see gold well supported and a military confrontation would see oil and gold rise rapidly in value on inflation hedging and safe haven buying.


(Bloomberg) — Gold May Gain 8.5% on Moving Average, Hammer: Technical Analysis 
Gold may gain 8.5 percent to $1,802 an ounce after the metal formed a so-called hammer pattern last week and held above its 55-week moving average, according to technical analysis by Citigroup Inc.

“The low may already be in place” after the metal held above the moving average and developed a hammer pattern, formed on a candlestick chart by a short body at the top of a long lower wick, resembling a hammer, the bank said. Prices may advance to $1,802, near the November high, before climbing to near September’s record of $1,921.15, Citigroup said.

“We continue to believe a platform is being set for a medium-term rally,” Tom Fitzpatrick, chief technical analyst at Citigroup in New York, wrote in a March 27 report with colleagues Shyam Devani and Jim Zhou. “The price action reminds us of 2006, which saw gold stabilize at the 55-week, turn back and ultimately carry on to make new highs.”

Gold for immediate delivery traded at $1,660.82 an ounce by 6:20 a.m. in London today, after climbing for the past 11 years. Prices are up 6.2 percent in 2012 even after sliding 2.1 percent the past month as signs that U.S. growth is accelerating pared investors’ expectations the Federal Reserve will buy more debt.

With the exception of in 2008, bullion hasn’t traded more than 1 percent to 3 percent below its 55-week moving average in the past decade, meaning prices of $1,585 to $1,615 may be a “buy zone,” Citigroup said.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

(Bloomberg) — The World Gold Council said it has another draft plan to combat “conflict gold”
The World Gold Council said it has another draft plan to combat “conflict gold”

The proposals to help miners produce metal that is free from fuelling or financing armed conflict were produced after comments from governments, investors and researchers, the producer-funded council said today in a statement on its website. Comments are being requested by June 30.

(Bloomberg) — UBS Positive on Palladium, Platinum, Iron Ore Over Three Months 
UBS AG has positive outlooks on palladium, platinum and iron ore over the next three months, according to an e-mailed report. There were “subdued price outlooks” for gold, zinc, thermal coal, uranium and alumimum, and “downside risks” for copper and nickel, UBS said.

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Mark O'Byrne
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