Monday, Aug 24, 2009
By Allen Sykora
Of DOW JONES NEWSWIRES
Gold futures declined sharply late Monday when chart-based selling accelerated as equities backed down from their earlier highs.
December gold was down only a few dollars for most of the session on the Comex division of the New York Mercantile Exchange, but in the final half hour suddenly hit a session low of $935.70 an ounce that at the time was a decline of $19. Gold quickly pared the loss, but still finished $11 lower for the day to $943.70.
The retreat appeared to be gather momentum as equities gave back earlier gains, said Charles Nedoss, senior account manager and metals analyst with Peak Trading Group. Additional technical selling was triggered as gold fell through three closely followed moving averages, he said.
"We came through the 20-day, the 10-day and now we're through the 50-day," he said.
Moments ahead of the pit close, the 20-day average was at $949.70. "As soon as it came through there, it fell off a cliff," Nedoss said. "In 10 minutes, you went from $950.50 all the way down to $935.70."
Also, the 10-day average was at $946.50 and the 50-day was just above $942.
The contract held just above the 100-day average of $933.90.
Some participants also may have been selling due to worries about how they would be affected by options expiration on Wednesday, says George Gero, vice president with RBC Capital Markets Global Futures.
Prior to the late-day collapse, gold had been modestly lower even when the Dow Jones Industrial Average and crude oil were higher - both factors that lately have tended to support the yellow metal.
Gold was held back by expectations for tepid inflation expressed by Federal Reserve members at a conference in Jackson Hole last week, said Jim Steel, analyst with HSBC. Additionally, the gold market has been "troubled" by the most recent U.S. inflation data, which has been soft, said Bart Melek, global commodity strategist with BMO Capital Markets.
The dollar's modest uptick also held gold back, said Tom Pawlicki, analyst with MF Global.
Silver, meanwhile, was well into positive territory most of the day even when gold was on the defensive. And while silver pared its gain as gold plummeted, silver still managed to eke out a small gain, with the December futures settling 3.2 cents higher at $14.231 an ounce.
Analysts tied silver's strength largely to ideas that any recovery in the economy will increase industrial applications for the metal.
Silver has a role as a precious metal and is sometimes even referred to as "poor man's gold," often bought as a hedge or safe haven against factors such as dollar weakness, inflation fears and geopolitical disturbances, or conversely selling off with gold when these types of supportive influences abate.
But silver also has a significant role as an industrial metal, including electronics and batteries, and frequently moves with the base metals such as copper, Melek pointed out. Thus, silver - like the base metals - has been helped lately by signs of a slowly improving economy.
"It's the risk-appetite theme, based on the expectation that the economy is going to recover," Pawlicki said. "Silver, having more industrial applications, is benefiting from that."
The stronger tone in stocks lately has also helped silver, Nedoss said.
"If the market is holding together, that's tipping the hand toward the world economy staying together, which would lead to more demand," Nedoss said.
Also, Melek pointed out, any production cutbacks in base-metals output following last year's price decline would also mean less supply of silver. Most silver is mined as a by-product of other metal output, such as lead, zinc and copper.
Meanwhile, October platinum fell $11.10 to $1,248.10 an ounce.
"There is some pressure potentially coming into platinum after mineworkers at least suspended a strike," Pawlicki said.
The National Union of Mineworkers called off a strike against Impala Platinum Holdings after the company raised its wage offer.
The news came after weekly data from the Commodity Futures Trading Commission on Friday showing that large speculators held a huge net long position, meaning potential for selling in the form of liquidation as traders unwind positions in which they had previously bought.
"I think we're seeing some profit-taking emerge on the back of the pay-deal news," said James Moore, analyst with TheBullionDesk.com.
December palladium was nearly steady, adding 20 cents to $286.45.
Settlements (includes open-outcry and electronic trading):
London PM Gold Fix: $951.50 versus $952.50 on Friday
Spot gold at 1:32 p.m. ET: $943.50, down $10.65 from previous day; Range: $937.85-957.10
December gold: $943.70, down $11; Range $935.70-$958.50
December silver: $14.231, up 3.2 cents; Range $14.09-$14.51
October platinum: $1,248.10, down $11.10; Range $1,241.10-$1,266
December palladium: $286.45, up 20 cents; Range $281.20-$286.90
-By Allen Sykora, Dow Jones Newswires; 541-318-8765; allen.sykora@dowjones.com
(END) Dow Jones Newswires
August 24, 2009 14:17 ET (18:17 GMT)
