Precious Metals Challenge Resistance Levels as Physical Market Remains Tight

Gold

Risk appetite increased yesterday as the first day of the new month saw equity buyers return and bond prices fall. Gold and silver prices fell marginally but remained near multi week highs and in gold’s case very near the all time record high (nominally). European equity markets are a bit more tentative this morning and the pound and the dollar have come under selling pressure.

Markets await the ECB decision and US jobs data and any negative surprises could be the catalyst for gold reaching new record highs (record daily high close is $1,258/oz and record inter day high is $1,265/oz). Gold is only a whisker away, just over 1%, from the record high and yet sentiment remains calm and media coverage muted.

The ECB is expected to keep rates at a record low of 1% and zero interest policies in Europe and in most western economies remains bullish for gold as the opportunity cost, the lack of yield, of owning gold is negligible. Especially with inflation having picked up recently in many economies internationally. Further signs of burgeoning food inflation were seen in the surge in the price of global meat prices which have risen to 20 year highs.

Gold is currently trading at $1,245.55/oz, €971.19/oz, £809.01/oz.

Gold – 30 days (Tick). Click on image to view full size

Silver

Silver is looking very well technically after its recent consolidation. The price action in silver has been impressive with every sell off being greeted by the large buy orders and short inter day rallies of some 50 cents in a matter of hours. There is resistance at the $19.50/oz level (12th of May high is $19.54/oz) – once breached, silver could rapidly rise to $20/oz before taking a breather.

Silver prices in the futures market continue to exhibit signs if backwardation which could be a sign of tightness in the silver market. As of 1000 GMT, spot silver was trading at $19.45/oz. The Sep10 contract at $19.435/oz, Oct10 contract at $19.445/oz and the Nov10 contract at $19.39/oz. Standard Bank’s senior commodity analyst, Walter de Wet notes "a tightening in the physical silver market   . . .    with increased demand from mainland China absorbing much of the silver supply traditionally coming to the wider market from Hong Kong."

Silver is currently trading at $19.43/oz, €15.15/oz and £12.62/oz.

Silver – 1 Year (Daily). Click on image to view full size

Platinum Group Metals

Platinum is trading at $1,535.50/oz, palladium is at $517/oz and rhodium is at $2,050/oz.

G10 Currencies and Precious Metals – Year to Date. Click on image to view full size

Mark OByrne

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