Germany has found itself more and more in the headlines. The very unsatisfactory Bund auction and the confirmed sales of Gold from its reserves were events that I would have commented on as unlikely, only a few weeks back.
The Gold “sales” are simply to enable the Finance Ministry of Germany to mint and sell commemorative coins. This is a long-established practice, and a reduction every other year of 4.7 tonnes out of a total of well above 3000 tonnes, will make no difference to the market whatsoever. It is important to read beyond the headline.
The “failed” Bund auction is a much more serious issue and it shows that the contagion in the Eurozone has now reached the hard core of the Euro zone members. This is a very serious and negative development. The calls for Eurobonds are growing louder by the day and it has to be questioned how long the German Government can resist the lure of giving into to the request. Personally, I am a firm believer that the introduction of Eurobonds would be wrong, without a harmonisation of fiscal integration, but the alternative could be the complete break-up of the Eurozone. Unfortunately, I doubt that the politicians will have the willingness or the time to discuss the fiscal union seriously, before the markets will force spectacular decisions. Having said this, if the introduction of Eurobonds is the only credible way of saving the Euro from catastrophe, then so be it. The damage will be felt long term but the short term pressure would start to dissipate. Next week’s non-farm-payroll numbers should be closely watched.
Gold: US$1682.00 – down US$42.00 on the week. Gold has lost US$120 over the course of the last two weeks, and I still maintain an underlying friendly view towards the end of the year. Central Bank buying is on-going at an accelerated pace and yearend liquidations from longs are dominating the current scenario.
Nevertheless, the danger during this lower–than-normal-month of December (in terms of liquidity), is to the upside. Liquidation and book squaring has been done before the “Thanksgiving weekend” last week, and a lot of market participants have already finished for the year. There will be a buyer, from the physical market or from the institutional side all the way down from the current level, but a round of buying would push into an empty market. The willingness to establish new short positions in a rising market will be greatly diminished over the course of the next few weeks.
Gold is paying tribute to the current rise of the US Dollar, but ultimately it will rise on the uncertainties and demise of the Euro. The strength of the US Dollar is resulting out of the weakness of the Euro, and not because of the economic strength of the US economy. I will only mention “Super committee,” Unemployment rate, and US presidential election in 2012, and it becomes clear that the lesser evil is currently prevailing. Beware of a year-end rally in Gold once liquidation has finished.
Option volatilities midrates: Gold atm
1 month 23.00% down 0.80%
3 month 26.00 % down 0.70%
6 month 27.50% down 0.60%
1 year 29.00% down 0.60%
EFP (Exchange for physical) midrate: Spot Gold to December COMEX: US $ 0.60
ETF: Holdings stand at 2420 tons overall
Support: 1665 and 1605 Resistance: 1717 and 1753
OUTLOOK : Neutral
Silver: US$31.20 – down US$1.15 on the week. Silver did not have a special week by any means. The losses in the week resulted from lower Gold prices and also from the bad performance of Platinum and Palladium.
Investor interest is negligible, and another test of the important US $30 mark has to be expected, unless Gold finds fresh impetus, which in turn would stabilize Silver as well. Silver is still in positive territory for the year, but it is in danger of eroding these small gains completely before the end of the year.
Option volatilities midrates: Silver atm (at the money)
1 month 43.00% down 4.00%
3 month 43.00% down 4.00%
6 month 42.50% down 4.00%
1 year 43.50% down 2.50%
EFP midrate: Spot to December COMEX Silver: US $ minus 1.50 cent
ETF: The total holdings are now 14725 tons
Support: 30.00 and 28.85 Resistance: 32.45 and 33.10
OUTLOOK : Bearis
Platinum: US$1524 – down US$60 on the week. Platinum looks very vulnerable in the
remaining five weeks of 2011. The investor interest has greatly diminished and there
are no fresh positive news emerging at the moment. ETF numbers have been static for
weeks now, and the investor behaviour in the professional market can only be described
as non-existent. The current liquidation is on-going and the only way Platinum seem to
be able to gain is a turnaround in the Gold price and sympathy purchases resulting out
of this scenario. The discount to Gold has widened to US$155 and the danger level will
be the US$200 mark. I do expect more stop-loss selling from the professional sector at
this level, which could quickly widen the discount towards US$250.
Option volatilities midrates: Platinum atm (at the money)
1 month 26.00% down 1.00%
3 month 27.00% down 1.00%
6 month 28.00% down 0.50%
1 year 28.00% down 0.50%
EFP (Exchange for physical) midrate: Spot to January NYMEX Platinum: US $ 1.90
ETF: Holdings are unchanged at 47 tons
Support : 1510 and 1490 Resistance : 1580 and 1610
OUTLOOK: Bearish
Palladium: US$564 – down US$36 for the week. Another tough week for Palladium as
it drifts nearer to the (hopefully) very strong support level at US$500. The economic
outlook for 2012 is even bleaker and the uncertainties are growing even stronger.
Palladium should see a better demand picture for 2012 as Diesel engines are most likely
gaining market shares in the important automotive growth markets. The catalysts for
the Diesel engines are mostly Palladium-based and that should stabilise the market
somewhere in the region around US$500.
Option volatilities midrates: Palladium atm (at the money)
1 month 38.00% down 2.00%
3 month 36.50% down 1.50%
6 month 35.00% down 1.00%
1 year 34.50% down 0.50%
EFP (Exchange for physical) midrate: Spot to December NYMEX Palladium: US $
0.00
ETF: Holdings are at 57 tons
Support: 537 and 500 Resistance: 615 and 630
OUTLOOK : Bearish
