Notable events this past trading week
Europe:
- Moody’s has cut the rating of the UK from AAA to Aa1.
- The budget gap from Spain for 2012 reached 10.2 per cent of GDP and is likely to reach 7.2 per cent in 2014, against its target of 2.8 per cent.
- Expectation for the GDP of the Eurozone members is expected to fall by 0.3 per cent in 2013, while the unemployment rate might rise to 12.2 per cent, according to EU commissioner Olli Rehn.
- The European Central Bank will receive Euro 61.1 billion on the 27th of February from the Banks in the Eurozone, as part of the early repayment scheme. This is significantly less than what was expected by many analysts.
- German business confidence rose to 107.4 in February, up from 104.3 in January.
India:
- The Indian Rupee finished the week at 54.48 to the US dollar.
Gold: US$ 1581 – down US$ 29 from last week.
Gold has quite a difficult week and the bounce towards the end is useful, but not encouraging enough to predict an end to the long liquidation seen. A strong build up of short positions, to a new record high, as recorded in the latest numbers of the Commitment of Traders Report (COTR), might offer the best short-term opportunity for a short covering rally.
The COTR numbers do not even include the proceedings from last Wednesday, and the number of short positions might therefore be a lot higher than visible in the publicised figures. The market started with a weak sentiment and the sell-off occurred even before the minutes of the FED meeting were released.
The, confusing at best, minutes were used to excuse the sharp sell-off towards the low of US$ 1555, but they were clearly not the reason. It appears that the FED members are at a discussing stage, without actually deciding on any changes to their current action. The discussion about the size of their balance sheet (potentially approaching US$ 4 trillion by the end of 2013) and the potential exit of the FED from accumulated assets is logical and essential.
We have been addressing this issue already a few months ago, and the FED deliberations are merely discussing the beginning of the end. The desired unemployment numbers and inflationary target of the FED still seem very far away, before a serious tightening of interest rate can be expected.
Some physical markets, especially China, have seen accelerated buying from the investment community, while the demand from India is still very much muted. The physical markets can slow a trend down, but the physical demand is not strong enough to change the pressure coming from the derivative markets. There have been some well publicised exits from prominent hedge fund participants, and there are suddenly a lot more voices advocating a price slump towards US$ 1350.
We do not share this view; in contrast, we do think that these current prices constitute a buying opportunity, as the key drivers and issues are far from being resolved. We are still expecting significantly higher prices during the year, without even contemplating potential geo-political issues to rise to the fore front.
The discount of Gold to Platinum decreased last week to US$ 27. The latest Commitment of Traders Report (COTR) shows a reduction of long positions, accompanied by a significantly larger increase in fresh short positions (end of business 19th February).
Option volatilities midrates: Gold atm (at the money)
1 month: 14.00% up 0.60%
3 month: 14.00% up 0.30%
6 month: 14.50% down 0.20%
1 year: 16.00% down 0.60%
Premium 1kg Gold bars loco Dubai (DGD 995 fine) against loco London: US$ 0.25
EFP Spot Gold to April Comex: Minus US$ 0.70
ETF: Holdings are at 2680 tons
Support: 1553 and 1532
Resistance: 1595 and 1612
Silver: US$ 28.72 – down US$ 1.00 from last week
Silver, together with platinum, has been the biggest loser during last week’s trading sessions. The risk associated with the higher volatility of silver, compared with gold, became very evident, as the prices slipped very dangerously towards the support level at US$ 28.17. The most disappointing fact seen last week, was the absence of a strong bounce, as silver aimlessly traded in the mid US$ 28 level.
The reported large increase in fresh short positions from the COTR report offers an opportunity, when and if, a spark can be found to trigger some short covering squeeze. This spark is most likely to come from gold, or the “white” precious metals, as silver is merely reacting to the proceedings in the other markets at this moment in time.
The latest Commitment of Traders Report (COTR) shows a reduction in long positions, accompanied by a large increase in fresh short positions (end of business 19th February).
Option volatilities midrates: Silver atm (at the money)
1 month: 24.25% up 2.25%
3 month: 24.25% up 1.25%
6 month: 24.75% up 0.75%
1 year: 26.0 % up 0.50%
EFP Spot Silver to March Comex: Minus US$ 4.50 cents
ETF: Holdings are at 17080 tons
Support: 28.17 and 26.84
Resistance: 29.70 and 30.45
Platinum: US$ 1606 – down US$ 69 from last week
The premium to gold has decreased to US$ 27.Platinum prices have retreated quite strongly during last week’s trading sessions and a lot of the recent gains have been eroded.
The negative sentiment in the precious metals segment played a major role in this disappointing price performance. Long liquidation and fresh selling from the mining community played a major part in last week’s proceedings. The fact that there was no fresh negative news from South Africa prompted a lot of the short-term speculative position holders to exit the market.
It is doubtful how quickly these investors are willing and able to come back to the platinum market, as a lot of investors have lost money during the last two weeks. The latest Commitment of Traders Report (COTR) shows a reduction of long positions, accompanied by a reduction of fresh short positions (end of business 19th February).
Option volatilities midrates: Platinum atm (at the money)
1 month: 17.50% up 0.50%
3 month: 18.00% unchanged
6 month: 18.75% unchanged
1 year: 19.75% unchanged
EFP Spot Platinum loco London to April NYMEX: US$ 0.65
ETF: Holdings are at 56 tons.
Support: 1602 and 1560
Resistance: 1660 and 1700
Palladium: US$ 737 – down US$ 20 from last week
Palladium succumbed to the general sell-off in precious metals, seen during the events of last week. Palladium fell on Wednesday towards the US$ 700 level, but was able to stabilize and recoup at least some of the losses. The overall and longer term bullish view has not changed, but the positioning of the market participants did give some reason for nervousness. The level of metal held in the ETF’s has reached a 25 per cent gain over the course of the last three months and the level of speculative positioning has also noticeably increased during this time period.
The fundamental story of palladium is excellent and reflects potentially the best opportunity in the precious metals segment, but a wash-out of short term longs (as seen last week) can only be helpful in the longer term. The trading during last week was dominated by weaker sentiment in the absence of any palladium specific news.
The latest Commitment of Traders Report (COTR) shows a miniscule increase in fresh long positions, accompanied by a small reduction of short positions (end of business 19th February).
Option volatilities midrates: Palladium atm (at the money)
1 month: 26.00% up 1.50%
3 month: 26.50% up 2.00%
6 month: 27.00% up 2.50%
1 year: 27.50% up 2.00%
EFP Spot Palladium loco London to March NYMEX: Minus US$ 0.25
ETF: Holdings are at 75 tons
Support: 708 and 682
Resistance: 778 and 793
Note: This is the Precious Metals Report for February 23, 2013 by Gerhard Schubert, Head of Precious Metals at Emirates NBD.
