Gold will need to clear resistance level at US $ 1600 next week

 Moodys has downgraded 16 Spanish banks, whilst Fitch has downgraded Greece again. Greece goes to the polls on the 17th June, whilst a caretaker government has been established. The Philadelphia Fed Index numbers were released as a minus 5.8 figure, against the median expectation from analysts of a plus 10 figure.

The minutes of the Federal Open Market Committee meeting indicate that the Federal Reserve Bank is not excluding more stimuli for the economy, if needed. This might be in the form of more quantitative easing, but could also be in the form of a renewed Operation Twist. Operation Twist achieves a similar effect to quantitative easing, but without the negative public relations reverberations, according to other market watchers.

The Indian Rupee is trading near all-time lows and a move toward 55, or even 56, against the US Dollar seems possible. However, his does affect potential gold purchases too much.

Gold: US $ 1592.00 – up US $ 12 from last week. The Commitment of Traders Report (COTR) shows a reduction of long positions and an increase of short positions. Gold was sold heavily in the early part of the week as risk-off behaviour was the dominant factor in most markets. A low of US $ 1527 was registered before there was some decent buying. The price moves on Thursday and Friday of last week seem to convey the message that gold has found, at least partially, its role as insurance policy – again. The move was very much helped by the Philly Fed Index number which sparked this rally within minutes of its release. The whole world has to wait for another four weeks before the Greek electorate go to the polls again, but who is to say that the result will be any clearer, or indeed,, more palatable. One way or the other, a decision will have to be made concerning the euro zone crisis. Gold will need to clear the resistance level at US $ 1600 next week; otherwise this quite impressive move will have been nothing more than a short covering rally. Physical buying has been very slow. ENBD had seen more buying than usual from its customers, but far from what could have been expected after such a sharp move downwards.

The strength of the US $ against all currencies, and especially against the Indian Rupee, stifled physical buying from India to a large degree. The World Gold Council released figures last week that showed that China has consumed 255.2 tonnes of Gold during the first Quarter to fulfill jewellery and investment demand. This shows the prowess and importance of the Chinese market and that China, coupled with India, is the main driver for a further potential rally.

Option volatilities midrates: Gold atm (at the money)

1 month 19.00 % up 4.00 %
3 month 20.00 % up 3.50 %
6 month 21.50 % up 3.00 %
1 year 23.00 % up 2.50 %

Premium 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US $ 0.75
EFP Spot Gold to June Comex: US $ minus 0.30
EFP Spot Gold to August Comex: US $ 1.75
ETF: Holdings are at 2492 tons
Support: 1525 and 1480 Resistance: 1600 and 1626

Silver: US $ 28.73 – down US $ 0.17 from last week. Long positions in silver have been liquidated and more new short positions have been established during last week, according to the Commitment of Traders Report (COTR). Silver traded briefly down to the US $ 26.70 level and managed to close the week only down a fraction. It did try to break US $ 29 on Friday but failed and settled near the previous week’s close. There was a swing of approximately eight per cent over the course of three days. Gold came to the rescue of silver, as it rallied from

Wednesday evening onwards, and singlehandedly moved all the “white” precious metals along with it for the ride. It seems that the build-up of short positions in silver can lead to a stronger short covering rally, but doubts remain whether the investment community can muster a move towards US $ 32, at which point I would expect a massive turnaround in positions.

Option volatilities midrates: Silver atm (at the money)

1 month 33.50 % up 6.50 %
3 month 33.50 % up 5.50 %
6 month 33.50 % up 2.50 %
1 year 33.00 % up 1.00 %

EFP Spot Silver to July Comex: US $ minus 3.75 cents
ETF: Holdings are at 14981 tons
Support: 26.77 and 26.05 Resistance : 29.00 and 29.56

Platinum: US $ 1455 – down US $ 7 from last week. The discount to Gold has increased to US $ 137. According to the Commitment of Traders Report (COTR), long positions have increased slightly, while a sizeable increase of short positions have been monitored. The price of platinum went down to US $ 1419 last week, and stabilized towards the end of the week. The long term technical trend line runs at US $ 1410 and was not tested. The weekend rally has been helped by a major price move in gold, which dragged platinum along in sympathy. It seems that there are various degrees of pressure, including political pressure, on the South African producers to keep mines open, which at the current price levels are, at best, not contributing to the bottom line and are loss-making, at worst. These political considerations are understandable as many
jobs could be lost but that will do nothing in terms of changing the underlying picture of a market, which has swung from deficit into oversupply.

Option volatilities midrates: Platinum atm (at the money)

1 month 18.00 % up 2.50 %
3 month 20.00 % up 1.00 %
6 month 21.50 % unchanged
1 year 24.50 % up 0.50 %

EFP Spot Platinum loco Zurich to July NYMEX: US $ 0.50
ETF: Holdings are at 46 tons.
Support: 1410 and 1385 Resistance : 1480 and 1510

Palladium: US $ 602 – up US $ 2 from last week. The latest COTR report shows that new long positions, as well as new short positions, have been established. The total amount of outstanding contracts is slightly reduced as the new shorts have outpaced the new longs. The London Platinum and Palladium week is over and there was reportedly some doom and gloom stories around. Most analysts agree that the future for Palladium looks good, in the medium term, with the supply and demand picture swinging into a metal deficit. Palladium has also performed very well during the sell-off in the precious metals sector from last week. A low of US $ 588 has been briefly noted, but there have been signs of interest from the industry, which helped stabilize the market around the US $ 600 level.

Option volatilities midrates: Palladium atm (at the money)

1 month 23.50 % up 2.00 %
3 month 25.50 % up 1.00 %
6 month 27.50 % unchanged
1 year 30.00 % unchanged

EFP Spot Palladium loco Zurich to June NYMEX: US $ minus 0.75
ETF: Holdings are at 64 tons
Support: 588 and 560 Resistance: 627 and 650

Precious Metals Report: Gerhard Schubert, Head of Precious Metals, Emirates NBD