Gold and silver prices expected to rise next week

World news with impact on gold and silver at a glance:

• China: The Consumer Price Index (CPI) rose 1.8 per cent in July, after a 2.2 per cent rise in June and a 3 per cent rise in May 2012.
• China: The Producer Price Index (PPI) fell to 2.9 per cent in July 2012, while the Industrial Production Index (IPI) grew 9.2 per cent in July. The median expectation from analysts for the IPI was 9.7 per cent.
• US: The trade deficit fell 11 per cent in June to US$42.9 Billion, compared to US$48 Billion recorded for the month of May 2012. This is the smallest deficit since December 2010.
• UK: The trade deficit rose in June to £4.3 Billion, up from £2.7 Billion in May 2012. This is the worst number since records began in 1997.
• The Indian rupee finished the week at 55.28 to the dollar.

Gold

US$1620.00 – up US$17.00 from last week. Gold finished the week being back at the US$1620 level, and that is in striking distance of the important and strong resistance level at US$1632. Last week can be described as a very quiet week concerning swings, and that is very evident at these very low volatility levels. A break of this resistance level at US$1632 could be important and a possible game-changer, because we have traded in the same, relatively narrow trading range since June 2012. It might be that there is (again) some speculation creeping in, expecting some policy changes from the Federal Reserve Bank at the Jackson Hole meeting. However, we do see Gold/EUR as one of the main drivers, and Gold/EUR is currently only 3 per cent away from its all-time high. Physical buying has increased without the increase being substantial. It might be expected that the lower US $ against the Indian Rupee could further improve the demand from India. The Commitment of Traders Report (COTR) shows that there has been a small reduction of long positions recorded, while the short positions have increased.

Option volatilities midrates: Gold atm (at the money)

1 month 13.75% down 0.75%
3 month 16.50% down 0.50%
6 month 19.00% down 0.25%
1 year 22.00% unchanged

Discount 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US $0.50
EFP Spot Gold to December Comex: US$2.35
ETF: Holdings are at 2525 tons
Support: 1588 and 1550 Resistance: 1632 and 1650

Silver

US$28.10 – up US$0.32 from last week. Silver finished the week up, and the outlook seems to have somehow improved. The amount of silver held in ETF’s is near or on record highs and the investment community appear to be buying any weakness in the price. This is not yet a signal for an immediate rally, but it does change the level of expectation for silver, going forward. The technical resistance at US$28.35 is noteworthy, but the real test would be a test of the strong resistance of the US$29.08 level. The COTR report shows that both, long as well as short positions have been reduced over the course of the last week.

Option volatilities midrates: Silver atm (at the money)

1 month 24.50% down 3.50%
3 month 29.00% down 1.50%
6 month 31.00% down 1.50%
1 year 34.00% down 1.00%

EFP Spot Silver to September Comex: US $ minus 6.50 cents
ETF: Holdings are at 15450 tons
Support: 26.80 and 26.09 Resistance: 28.35 and 29.08

Platinum

US$1394 – down US$9 from last week. The discount to Gold has increased to US$225, with potential further stop loss selling to be expected above a differential of US$250. The outlook for Platinum appears to be still weak. The uncertainties in the global economy are hampering the outlook for platinum prices, with Chinese exports under pressure and the European sovereign debt issues raging on. These uncertainties are proving to be a positive driver for gold prices (insurance policy syndrome), while undermining any potential recovery for the “industrial Precious Metals” (Platinum and Palladium). The Commitment of Traders Report (COTR) show an increase in long positions, coupled with a small decrease of existing short positions. Platinum prices have tested the US$1380 levels several times already this year, and this has become an important technical support level now. A break to the downside could potentially lead to a test of US$1330 level.

Option volatilities midrates: Platinum atm (at the money)

1 month 17.00% down 0.75%
3 month 19.00% down 1.00%
6 month 20.50% down 0.50%
1 year 23.00% unchanged

EFP Spot Platinum loco Zurich to October NYMEX: US$0.70
ETF: Holdings are at 46 tons.
Support: 1380 and 1350 Resistance: 1433 and 1478

Palladium

US$579 – up US$2 from last week. Palladium has held relatively well, but the performance is very uninspiring. There does not seem to be any significant interest in palladium out there, in order to accelerate price movements to one side or another. The Commitment of Traders Report (COTR) shows a very small increase of long positions, while a reduction of short positions has been recorded.

Option volatilities midrates: Palladium atm (at the money)

1 month 20.00% down 1.00%
3 month 22.00% down 1.00%
6 month 24.50% down 0.50%
1 year 27.50% down 1.00%

EFP Spot Palladium loco Zurich to September NYMEX: US $ minus 1.00
ETF: Holdings are at 62 tons
Support: 560 and 540 Resistance: 595 and 616