Silver on the up, gold on the downside

The monthly US Producer Price Index (PPI) for the month of June 2012 rose 0.1 per cent. The median expectation from analysts was an increase of 0.4 per cent. The US consumer confidence University of Michigan index fell to 72 from 73.2 in June. The median forecast was expecting a rise to 73.5. The President of the Atlanta FED and a member of the FOMC Lockhart increases the likelihood of further Quantitative Easing, if the weakness of the economy continues.

Chinese GDP grew at a rate of 7.6 per cent, which is less than the 8.1 per cent target set by the government. Chinese Industrial Production fell in June to 9.5 per cent, down from 9.6 per cent in May Moody`s downgraded Italy`s rating by two notches to Baa2 with a negative outlook. Italy borrowed 3.5 Billion Euros for three years at 4.65 per cent, which represents a 0.65 per cent drop, compared with the result from the last auction. The Indian rupee finished the week at 55.15 to the dollar.

Gold

US$ 1588.00 – up US$ 4.50 from last week.

Gold fell on Thursday to the US$ 1556 level, when strong buying emerged (partially in sympathy with silver), which puts gold back on the road to recovery. The week finished higher and most of Fridays trading during New York hours were conducted above the US$ 1590 level. There has been a reduction of open long positions in gold, coupled with a massive expansion in fresh short positions, according to the Commitment of Traders Report (COTR). The price action is still consolidating at these levels but there is a very noticeable absence of decent physical buying in the markets. The premium on physical gold in the Dubai market against loco London is currently zero, with the possibility to purchase some material even at a small discount (US$ 0.50). There are reports coming from India of slower gold purchases and that the average rainfall at the beginning of this monsoon season is less than the average seen in years gone by. The premium for gold over platinum rose last week to over US$ 160.

Option volatilities midrates : Gold atm (at the money)

1 month 16.50 % down 1.00 %
3 month 17.50 % down 1.00 %
6 month 19.50 % down 0.50 %
1 year 22.00 % down 0.50 %

Premium 1kg Gold bars loco Dubai (DGD 995 fine)
EFP Spot Gold to August Comex: US$ minus 0.55
ETF: Holdings are at 2520 tons
Support : 1550 and 1523 Resistance: 1628 and 1640

Silver : US$ 27.31 – up US$ 0.21 from last week.

Silver closed the week higher. It was trading last Thursday at fresh lows around the US$ 26.50 level. That was the time when the announcement was made of the offering of potentially 7.5 million ounces for the Sprott Physical Silver ETF. The uptake spurred the turnaround and silver prices managed to rally up towards the US$ 27.50 mark before closing for the week near US$ 27.30. The rally in silver helped to initiate the strong rally in gold. The buying for the Sprott Physical Silver ETF is also documented in the strong rise of the ETF holding number underneath. The Commitment of Traders Report shows a further reduction of existing long positions, while there has been a notable increase in fresh short positions. Last week`s relief rally in silver was strong and important but the technical downside risks are still strong. US$ 26.09 represents a very important level as it is difficult to see any major support level before reaching the mid US$ 22 level.

Option volatilities midrates : Silver atm (at the money)

1 month 31.00 % up 0.50 %
3 month 33.00 % up 0.50 %
6 month 34.50 % unchanged
1 year 35.50 % unchanged

EFP Spot Silver to September Comex: US$ minus 5.00 cents
ETF: Holdings are at 15360 tons
Support : 26.09 and 25.20 Resistance : 28.12 and 28.80

Platinum 

US$ 1424 – down US$ 16 from last week. The discount to Gold has increased to over US$ 160. The Commitment of Traders Report shows a reduction of both, long and short positions, which can be seen as a sign of growing ignorance at the current price level. Platinum traded last Thursday down to the US$ 1400 level (again) and rallied from there in sympathy with silver and gold. The level of US$ 1400 has held reasonably well in recent times but the general economic outlook does not bode that well. The uncertainties from the supply side are growing and this might be a catalyst for some positive price action, but this does not appear to be imminent. The slower summer month are now right in front of us, and a further easing of volatilities might be on the cards.

Option volatilities midrates : Platinum atm (at the money)

1 month 19.00 % unchanged
3 month 21.25 % unchanged
6 month 22.00 % down 0.50 %
1 year 24.00 % down 0.25 %

EFP Spot Platinum loco Zurich to October NYMEX: US$ 1.00
ETF: Holdings are at 46 tons.
Support : 1400 and 1385 Resistance : 1478 and 1500

Palladium

US$ 580 – up US $ 6 from last week.

Palladium tested the US$ 569 level on Thursday before rallying towards the end of the week. Palladium is this week the only metal where both, fresh longs and fresh shorts have been established, according to the Commitment of Traders Report. The outlook for palladium is still viewed by many analysts as more favourable than platinum and there seem to be less supply uncertainties surrounding palladium. There has been speculation that the Chinese government might add some stimulus to the economy, while they have to keep housing inflation in check. This might be potentially very positive news for palladium, as the automotive industry could be
a selected benefactor of these actions.

Option volatilities midrates: Palladium atm (at the money)

1 month 23.50 % up 0.50 %
3 month 25.50 % up 0.75 %
6 month 26.50 % up 0.50 %
1 year 29.00 % unchanged

EFP Spot Palladium loco Zurich to September NYMEX: US$ 0.25
ETF: Holdings are at 63 tons
Support: 540 and 517 Resistance: 607 and 628