Friday 25 September 2009

PRECIOUS METALS: Comex Gold, Silver Still Correcting Lower

Fri, Sep 25 2009, 18:03 GMT

PRECIOUS METALS: Comex Gold, Silver Still Correcting Lower
   By Allen Sykora

Gold futures continued to correct lower Friday, initially falling as the euro slid but then staying on the defensive even when the dollar gave up its early gains.

December gold fell $7.30 to $991.60 an ounce on the Comex division of the New York Mercantile Exchange. December silver fell 23.5 cents to $16.06.

A trader characterized the move as follow through from the decline on Thursday. It was the second straight close for gold below $1,000 after the market previously settled above there each day since Sept. 10.

"We're just seeing a correction back down to support," said a New York trader. "It's sort of like a flock of birds. It turned south yesterday and a bit again today."

Much of the selling appeared to be in the form of long liquidation, in which those who previously bought were selling in order to exit positions.

"We've gone from $950 to $1,025 and we're correcting back," said the trader. "In silver, we've gone from $14 to $17.50 in the course of a month, and we're just correcting back."

December gold fell as far as $985.50 an ounce, its weakest level since the Sept. 10 low of $983.20. But around here, some chart support appeared to emerge, said the trader.

Gold fell swiftly first thing in the morning after the dollar upticked and stocks downticked on a weaker-than-forecast report on U.S. durable-goods orders. Durables fell 2.4%, when economists were looking for a 0.3% uptick. The precious metal then remained softer even when the euro recovered.

Some technical selling was triggered as December gold fell back below the 20-day moving average, which now lies around $995.80.

There was potential for the recent correction in prices to prompt further liquidation out of long positions, said Tom Pawlicki, precious-metals analyst with MF Global. He pointed out that there was an increase of some 90,000 contracts of open interest, which is the number of positions open at the end of the trading day, during a rally in the first half of September.

"Now that we're putting a lot of those positions under water, it could encourage additional liquidation by weak longs," he said. "That rally began around the $960 level. So there is an indication we could approach $960 based on liquidation of some of these longs."

A "negative" for the market was the decline in exchange-traded fund holdings, he added. Holdings in the world's largest ETF, SPDR Gold Shares, fell 7.63 metric tons Thursday to 1,094.11.

Ira Epstein, director of the Ira Epstein division of The Linn Group, commented that gold is approaching a time frame when it tends to have a seasonal pullback. The period from autumn until Christmas is often considered a seasonally strong time from gold. But gold often has a downside bias in October and in fact has fallen in 13 of the last 15 years, Epstein said.

"People have already done their first wave of buying for the Christmas season and the jewelry season and so on," he said. "They step back and are waiting to see what happens in the November time frame.

"Of the past 15 years, 13 have produced a decline in the month of October. I think gold has shown that bias already. With the bonds rallying sharply and the dollar down and no upside in the metals market, I think it's telling you that it's made a top."

Still, the analyst looks for any pullback to stop in the $970 to $950 area during October.

"So I'm not looking for a crash of any type, but for the market to gradually work lower."

Epstein put support for December gold at $977 and nearby resistance around $1,000. He pegged support for December silver at $15.50 and resistance around $16.60.

Meanwhile, January platinum fell $24.80 to $1,288.90 an ounce, while December palladium declined $3 to $294.90 an ounce.

"We saw a little more liquidation, especially when gold traded back below $990," said one trader.

Some technical selling occurred in January platinum. It fell to $1,275 an ounce, its lowest level since Sept. 8.

"We were trading around $1,300 when we first came in," the trader said. "As soon as it got below that, it came off even harder."

Settlements (includes open-outcry and electronic trading):
London PM Gold Fix: $991.50 versus $1,009.75 on Thursday
Spot gold at 1:30 p.m. ET: $990.70, down $4.05 from previous day; Range: $984.90-$999.40
December gold: $991.60, down $7.30; Range $985.50-$1,000.50
December silver: $16.06, down 23.5 cents; Range $15.955-$16.41
January platinum: $1,288.90, down $24.80; Range $1,275-$1,312
December palladium: $294.90, down $3; Range $292.55-$297.80

-By Allen Sykora, Dow Jones Newswires; 541-318-8765;

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