Gold Gives Up Gains for Year—and Could Go Lower-Forex

Gold is basically back to breakeven for the year, and analysts say the precious metal looks set to go even lower.
June gold futures plummeted $35 an ounce Tuesday to end the session at $1604.50, after briefly dipping to $1595.50, the lowest settlement and intraday price for gold since Jan. 3.

Gold has plunged about $120 from this year's high near $1715 an ounce in early February.

The primary catalyst for gold's slide, say traders and analysts, has been the euro's decline and resulting strength in the U.S. dollar due to worries about the economic future of the eurozone, following weekend elections in Greece and France. 

Gold's initial break below a key technical support level—$1,625 an ounce—at the start of the open-outcry session at the Nymex Tuesday also exacerbated the selloff. 

The situation in Europe is "fueling an anti-inflationary sentiment," said RBC Capital Markets precious metals analyst George Gero. "You need to own gold to protect your purchasing power because you think prices are going through the roof. Now what is happening in Europe is deflationary, not inflationary, because the economic recoveries are slow in coming," which has pressured gold prices.

Sentiment is also getting even more bearish.

"Open interest in gold futures also rose yesterday, indicating that new short positions are entering the market," says gold trader Kevin Grady of Phoenix Futures and Options. "A lot of longs have already liquidated and off of a move today you'll see more shorts entering the market."

Now that gold has broken out of its recent trading range, look for further weakness, analysts say. "It's been going sideways since September, 2011. Usually when you fail at the top of the range, $1800, you come down and kiss the bottom," says Jordan Kotick, global head of technical strategy at Barclays Capital. "So the bottom end of the range is the mid- to low-$1500 handle."

Traders say another factor contributing to the weakenss is the possible selling of oil by Iran to China in exchange for gold, leading to a spot gold sale to close out the trade. They also point to the significant short position placed on gold by Berkshire Hathaway. Berkshire Hathaway CEO Warren Buffet reiterated his argument that gold is an unproductive asset that will be outperformed by stocks or even farmland. 

It appears Berkshire "is at war with this asset class," says Ross Norman, CEO of Sharps Pixley, a London-based physical precious metals trading firm. RBC Capital's Gero agrees Buffet's comments could be a contributing factor to the gold selloff.

But other traders say Tuesday's gold selloff has been influenced more by technical selling.

"Gold has been stuck in a trading range for months and now it's broken out and initiated a new direction. I think you trade the short side right now," says gold trader Mihir Dange of Amarok Capital.

Trader John Netto of M3 Capital agrees that in the short run the technical damage in the gold market, with prices falling below the $1625 support level, has built up tremendous downside momentum that may have set up a move to as low as $1400 an ounce. 

Asad Khan
Financial Analyst  (CFB)
050-8774861
asad@cfb.ae

Gold Gives Up Gains for Year—and Could Go Lower-Forex

Gold is basically back to breakeven for the year, and analysts say the precious metal looks set to go even lower.
June gold futures plummeted $35 an ounce Tuesday to end the session at $1604.50, after briefly dipping to $1595.50, the lowest settlement and intraday price for gold since Jan. 3.

Gold has plunged about $120 from this year's high near $1715 an ounce in early February.

The primary catalyst for gold's slide, say traders and analysts, has been the euro's decline and resulting strength in the U.S. dollar due to worries about the economic future of the eurozone, following weekend elections in Greece and France. 

Gold's initial break below a key technical support level—$1,625 an ounce—at the start of the open-outcry session at the Nymex Tuesday also exacerbated the selloff. 

The situation in Europe is "fueling an anti-inflationary sentiment," said RBC Capital Markets precious metals analyst George Gero. "You need to own gold to protect your purchasing power because you think prices are going through the roof. Now what is happening in Europe is deflationary, not inflationary, because the economic recoveries are slow in coming," which has pressured gold prices.

Sentiment is also getting even more bearish.

"Open interest in gold futures also rose yesterday, indicating that new short positions are entering the market," says gold trader Kevin Grady of Phoenix Futures and Options. "A lot of longs have already liquidated and off of a move today you'll see more shorts entering the market."

Now that gold has broken out of its recent trading range, look for further weakness, analysts say. "It's been going sideways since September, 2011. Usually when you fail at the top of the range, $1800, you come down and kiss the bottom," says Jordan Kotick, global head of technical strategy at Barclays Capital. "So the bottom end of the range is the mid- to low-$1500 handle."

Traders say another factor contributing to the weakenss is the possible selling of oil by Iran to China in exchange for gold, leading to a spot gold sale to close out the trade. They also point to the significant short position placed on gold by Berkshire Hathaway. Berkshire Hathaway CEO Warren Buffet reiterated his argument that gold is an unproductive asset that will be outperformed by stocks or even farmland. 

It appears Berkshire "is at war with this asset class," says Ross Norman, CEO of Sharps Pixley, a London-based physical precious metals trading firm. RBC Capital's Gero agrees Buffet's comments could be a contributing factor to the gold selloff.

But other traders say Tuesday's gold selloff has been influenced more by technical selling.

"Gold has been stuck in a trading range for months and now it's broken out and initiated a new direction. I think you trade the short side right now," says gold trader Mihir Dange of Amarok Capital.

Trader John Netto of M3 Capital agrees that in the short run the technical damage in the gold market, with prices falling below the $1625 support level, has built up tremendous downside momentum that may have set up a move to as low as $1400 an ounce. 

Asad Khan
Financial Analyst  (CFB)
050-8774861
asad@cfb.ae

Crude Prices Are Still Too High, Saudi Arabia’s Oil Minister Al-Naimi Says-Online Forex

Saudi Arabia is storing as much as 80 million barrels of crude to boost supplies amid international prices that are “still a little bit high,” according to the country’s oil minister Ali al-Naimi.


Asad Khan     
Financial Analyst  (CFB)
(043841906)
asad@cfb.ae


Online Forex Trading Click Here  www.cfb.ae
 

Crude Prices Are Still Too High, Saudi Arabia’s Oil Minister Al-Naimi Says-Forex

Saudi Arabia is storing as much as 80 million barrels of crude to boost supplies amid international prices that are “still a little bit high,” according to the country’s oil minister Ali al-Naimi.


Asad Khan     
Financial Analyst  (CFB)
(043841906)
asad@cfb.ae

ECB official warns Greece: Stick to the plan or get out-Forex

 Greece in turmoil

Greece is in turmoil today, and likely headed toward another election, as uncertainty weighs on Athens and the markets, punctuated by a warning from an official of the European Central Bank.
After Sunday's elections left the country with no clear outcome, the head of the party that wants to undo the terms of the bailout is now trying to form a coalition government. But it's not clear that will work, which could mean a second vote. And time is not on its side.
"The time line going forward requires Greece to pass a budget including measures agreed to in its last bailout as a pre-condition for the first review that is supposed to occur by the end of this month," noted Derek Holt and Dov Zigler of Scotia Capital.

"A medium-term fiscal plan is also supposed to be ready by the end of May. All of this is necessary in order to prove that financing is in place for the next year. At present, these time lines are unlikely to be met and especially so if another election is called on a coalition stalemate."
The voters have clearly spoken in Greece, and that's the direction politicians have to take.
But it's not clear a coalition can even be formed at this point - the first-place New Democracy party failed to put one together - and the situation now threatens the international rescue of the country.
And should Alexis Tsipras and his Syriza party, which took second place in the elections, form a coalition government, then all bets are off.

I'm not saying he'd be wrong to attempt to rewrite the harsh terms of the bailout agreement - indeed, something has to give amid Greece's crippling unemployment - only that it would plunge Greece back into fiscal turmoil.
As he put it today on state television, Sunday's vote was one against "a barbaric bailout."
“There will be no €11-billion of additional austerity measures, 150,000 jobs will not be cut," he said.
But that's if he can form a coalition.

"Given he is unwilling to talk to ND (New Democracy party), the Communist Party has said it won’t talk to anyone and Golden Dawn (the extreme right) is not a candidate coalition partner, the numbers don’t add up," said senior currency strategist Elsa Lignos of RBC in London.
"So it seems Greece will have to go back to elections (June 17 is the touted date)," Ms. Lignos said, noting the country's looming obligations aside from the bond swap deal, known as the private sector involvement or PSI, arranged earlier.

"Greece’s €436-million redemption on May 15 is starting to attract attention – it is an international bond which was not part of the PSI," she said.
"There is a 30-day grace period so Greece could effectively hard default just days ahead of a new election. That would open the way for litigation but the real story should still be what fresh elections mean for chances of a [euro] exit."

 Jörg Asmussen, a member of the executive board of the ECB, one of the parties involved in the Greek bailout, warned Greece's squabbling politicians today there's no going back.
"Greece needs to be aware that there are no alternatives to the agreed bailout program, if it wants to stay in the euro zone," he told the German newspaper Handelsblatt.

Asad Khan     
Financial Analyst  (CFB)
(043841906)
asad@cfb.ae

ECB official warns Greece: Stick to the plan or get out

Greece in turmoil
Greece is in turmoil today, and likely headed toward another election, as uncertainty weighs on Athens and the markets, punctuated by a warning from an official of the European Central Bank.
After Sunday's elections left the country with no clear outcome, the head of the party that wants to undo the terms of the bailout is now trying to form a coalition government. But it's not clear that will work, which could mean a second vote. And time is not on its side.
"The time line going forward requires Greece to pass a budget including measures agreed to in its last bailout as a pre-condition for the first review that is supposed to occur by the end of this month," noted Derek Holt and Dov Zigler of Scotia Capital.

"A medium-term fiscal plan is also supposed to be ready by the end of May. All of this is necessary in order to prove that financing is in place for the next year. At present, these time lines are unlikely to be met and especially so if another election is called on a coalition stalemate."
The voters have clearly spoken in Greece, and that's the direction politicians have to take.
But it's not clear a coalition can even be formed at this point - the first-place New Democracy party failed to put one together - and the situation now threatens the international rescue of the country.
And should Alexis Tsipras and his Syriza party, which took second place in the elections, form a coalition government, then all bets are off.

I'm not saying he'd be wrong to attempt to rewrite the harsh terms of the bailout agreement - indeed, something has to give amid Greece's crippling unemployment - only that it would plunge Greece back into fiscal turmoil.
As he put it today on state television, Sunday's vote was one against "a barbaric bailout."
“There will be no €11-billion of additional austerity measures, 150,000 jobs will not be cut," he said.
But that's if he can form a coalition.

"Given he is unwilling to talk to ND (New Democracy party), the Communist Party has said it won’t talk to anyone and Golden Dawn (the extreme right) is not a candidate coalition partner, the numbers don’t add up," said senior currency strategist Elsa Lignos of RBC in London.
"So it seems Greece will have to go back to elections (June 17 is the touted date)," Ms. Lignos said, noting the country's looming obligations aside from the bond swap deal, known as the private sector involvement or PSI, arranged earlier.

"Greece’s €436-million redemption on May 15 is starting to attract attention – it is an international bond which was not part of the PSI," she said.
"There is a 30-day grace period so Greece could effectively hard default just days ahead of a new election. That would open the way for litigation but the real story should still be what fresh elections mean for chances of a [euro] exit."

 Jörg Asmussen, a member of the executive board of the ECB, one of the parties involved in the Greek bailout, warned Greece's squabbling politicians today there's no going back.
"Greece needs to be aware that there are no alternatives to the agreed bailout program, if it wants to stay in the euro zone," he told the German newspaper Handelsblatt.

Asad Khan     
Financial Analyst  (CFB)
(043841906)
asad@cfb.ae

Australian budget set to return to surplus this year

The Australian government is set to end four years of public spending deficits and return to a budget surplus this year, as it looks to shore up support.

Treasurer Wayne Swan is due to announce deep cuts in spending, but also cash payments for the low-paid in his budget.
He said the surplus would allow the central bank to cut interest rates.
It comes with support for Prime Minister Julia Gillard and her minority government near record lows.
Mr Swan will deliver the budget to parliament at about 19:30 Canberra local time (09:30 GMT).
'Battler's budget' The budget for 2012-2013 is set to include cuts to Australia's military spending and other government departments.
The governing Labor party has said it is also aimed at supporting lower-income families.
"In many ways this is a battler's budget," said Mr Swan in Canberra on Tuesday, according to ABC News.
"It makes sure we support jobs, it provides cost-of-living support for those under financial pressure and it puts in place new initiatives for some of the most vulnerable in our community."
Although Australia's economy has weathered the global financial crisis better than most developed nations, Mr Swan said this surplus would strengthen it against shocks from future global economic uncertainty.
"When you look around the world, when you look at what's happening in Europe, you can see that Australia's economic fundamentals are strong," he said.
"Coming back to surplus is about making sure we help those people sitting around the kitchen table when they're figuring out how they will make ends meet."
But Opposition Leader Tony Abbott said bringing the budget to surplus was based on "fiddled figures", according to ABC News.
"The Treasurer has artificially moved spending out of next year into this year or into the year after, and he's artificially moved spending off-budget that should be on-budget, so this is a cooked books surplus," Mr Abbott said.
Some analysts have also questioned the need for a surplus, given the central bank moved last week to cut the cost of borrowing by 50 basis points and lowered the country's growth forecast.
A lower cost of borrowing, now at 3.75%, provides relief for mortgage holders facing high real estate prices.
Politics is playing a part in this move to a surplus as well. The BBC's Duncan Kennedy, in Sydney, says this is a budget that could determine Julia Gillard's political future, with elections due to be held in November 2013.

Asad Khan
Financial Analyst  (CFB)
050-8774861
asad@cfb.ae