London, 06 October 2008 - Despite negative economic data from the US Friday the focus was firmly on the bailout package, and whether the House of Representative would give official sanction. Now that the deal has been ‘okayed’ the question is will it be sufficient to calm market fears? As well, with cracks now appearing in European markets will European finance ministers be forced to carry out a similar mass injection of liquidity? Initial reaction by the dollar has seen EUR/USD trade to 1.3595 from Friday’s close of 1.3774, meanwhile NYMEX crude has traded below $92/barrel this morning after closing Friday little changed at $93.88/barrel.
With borrowing rates at record levels as credit market liquidity tightened the precious metals remained under pressure Friday as speculative players continued cutting their exposure in order to create. The yellow metal closed at $826.25 after dipping to $824.75. Gold has been steady so far this morning with physical demand absorbing dollar related selling. Given the likely strength in the dollar and weakness in the Euro this week gold looks likely to remain on the defensive, particularly as cash markets remain tight. Gold could test back too, and potentially below, the $800/oz level, however the longer-term implication of the US deal will ultimately downgrade US Dollar assets, with a short-term price dip falling favourably into the hands of the physical sector as we head to peak demand period. COT data for the week of September 30th showed a 10-tonne drop in the NC net long as both long liquidation and short covering was seen.
Silver saw a more orderly day Friday, trading $10.85-11.44 and closing at $11.25. Further pressure on gold will see silver test back to September’s low of $10.25, and potentially back in to single digits. Friday’s COT report showed a 14.1M/oz fall in the NC net long as over 18M/ozs of longs were cut.
Platinum slid to its lowest since December 2005 on Friday, posting a low of $946 during Asian trade. The white metal stabilized across the rest of the day, settling at $960 but has run into fresh pressure overnight from OTC and TOCOM longs, with the white metal dipping to $930/oz. Friday’s COT report has shown as 50% reduction in speculative shorts in the week till September 30th, and may draw some bargain hunting support into the market, but with the metal still in a technical down channel and momentum indicators pointing lower the metal may have further to fall before a base is found.
Palladium lost a further $4 yesterday, settling at $194. On the charts support is seen at $192 and below at $176 with resistance at $212/220.
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