London Bullion Report

Gold stabilizes below $1000 as Fed cuts by less than expected

Wed, Mar 19 2008, 07:44 GMT
by James Moore

The Bullion Desk


Despite rebounding earlier in the day the gold market finished Tuesday in negative territory after a less than forecast cut by the US Federal Reserve triggered a modest recovery in the greenback, and in turn long liquidation in gold. The FOMC cut its lending rate by 75-bp to 2.25% in a bid to stimulate growth and halt the US from slipping into recession. The cut was less than the anticipated100-bp cut as the Fed citied the cut was big enough to stimulate growth whilst leaving the door open to further reductions. The rate cut was interpreted positively by US equity markets, with the Dow posting its largest single day gain in 5-years. The dollar rebound led EUR/USD to close down at 1.5613 although the Eurozone currency has firmed back above 1.57 this morning, with no economic data scheduled for release from the US today. Despite the pressure seen in the precious metals crude oil recovered most of Monday’s weakness, closing up 3.5% at $109.42/barrel.

Gold opened under pressure in Asia, dipping below $1000 before finding support around $994. Bargain hunters prevented further weakness with gold straddling the $1000 level before firming to a high of $1012 in Europe. Gold traded $1000-08 across the rest of the day before selling-off in late trade in reaction to the Fed rate cut. Gold dipped to $976.30 in after market trade but has firmed back to $990 this morning on the back of the EUR/USD. Yesterdays reaction was a case of buy the rumour sell the fact, and could cause further profit taking short term however the prospect of lower US interest rates in the mid-to-longer-term outlook paints a negative picture for the dollar and a bullish one for gold, supporting our view that gold will challenge $1250 this year. Substantial support is forecast below the market with chart support is pegged at $968/955/952.

Gold

Silver tracked gold lower in Asia yesterday but found substantial support at Monday’s low of $19.89. Silver stabilized back above $20 once the European session got underway, posting a high of $20.43 before drifting back to the $19.89 support during US trade. Persistent offers eventually eroded the support with silver dipping to $19.48 in after market trade. Given negative momentum indicators silver remains vulnerable to further long selling with a failure to hold above chart support at $19.36/19.20 potentially triggering a deeper correction back to $18.20. But as with gold given the negative economic outlook in the US, the prospect of further rate cuts in the US and investors increasing appetite for risk aversion assets, we expect silver to recover quickly and challenge towards the $21.85-22.00 area.

Silvers

Strong support emerged at $1940 yesterday to underpin platinum with the white metal rising to $2018 during European trade. Further pockets of profit taking caused the white metal to reverse its gains across the rest of the day, closing at $1972, with reaction to the Fed rate cut causing the metal to test support at $1940 again this morning. While tight fundamentals and supply disruptions should limit further weakness in the white metal, a break below last weeks $1920 low could trigger a deeper correction back to the $1880 area.

Platinum

Palladium traded $458-88 yesterday and closed with a $13 gain at $480. Selling pressure has emerged overnight although the metal remains within the parameters set Tuesday. A failure to hold above $460 could see palladium dip back to $430 and potentially down to $408-12.

Palladium

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