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A.M. Kitco Metals Roundup: Gold Boosted by China Inflation Uptick, More Short Covering

Tuesday July 9, 2013 8:26 AM

(Kitco News) - Gold prices are higher in early U.S. trading Tuesday on inflation news out of China and some technical follow-through buying strength from Monday's gains. More short covering and bargain hunting are featured. August gold was last up $14.00 at $1,248.90 an ounce. Spot gold was last quoted up $13.20 at $1,251.00. September Comex silver last traded up $0.082 at $19.12 an ounce.

Gold prices were boosted overnight on news that China's inflation rate heated up a bit. China's June consumer price index was up 2.7% on an annualized basis, compared to a 2.1% rate in May and above the consensus forecast for a 2.5% rise. Gold and other hard assets have traditionally been used as a hedge against inflationary price pressures. The China inflation news coincides with the recent surprisingly sharp rise in U.S. bond yields and home mortgage rates. While still not perceived by the world market place to be problematic, inflation is a phenomenon that creeps up and is not recognized as a serious problem until it already has a strong grip around the throats of major economies. Many market watchers have never been convinced that the past few years of the major central banks of the world printing money that such would not come back to produce a strong inflationary bite.

European stock markets rallied Tuesday on ideas of better upcoming corporate earnings reports. There also appeared to be at least a temporary easing of investor concerns about the political, financial and economic health of the sickly European Union countries Greece and Portugal. Meantime, Asian stocks were mostly higher Tuesday as traders and investors in that region shrugged off the China inflation data as non-problematic.

The civil unrest in Egypt is still a front-burner issue for the world market place. There were no major developments overnight, but the situation still has traders uneasy. The crisis in Egypt could quickly escalate and even spread to other countries in the Middle East. Gold has seen some safe-haven investor demand due to the recent political upset and violence in Egypt.

The market place is awaiting the Wednesday release of China's latest trade report and the minutes of the last U.S. Federal Reserve FOMC meeting. These two data points are the most important economic readings of the week.

The U.S. dollar index is firmer Tuesday morning and hovering not far below last Friday's three-year high. The overall strong technical posture of the dollar index remains a major bearish underlying factor for the metals. Nymex crude oil prices are slightly lower Tuesday, but prices did hit a 14-month high Monday. With Nymex crude trading above $100 a barrel, that is a bullish underlying factor for the raw commodity sector, including the precious metals.

U.S. economic data due for release Tuesday includes the NFIB small business index, the weekly Goldman Sachs and Johnson Redbook retail sales reports, the employment trends index and the IMF world economic outlook update.

The London A.M. gold fix is $1,252.00 versus the previous London P.M. fixing of $1,235.25.

Technically, the gold market bears remain in firm overall near-term technical control. August gold futures prices are in an eight-month-old downtrend on the daily bar chart. The gold bulls' next upside near-term price objective is to produce a close above technical resistance at last week's high of $1,267.00. Bears' next near-term downside breakout price objective is closing prices below solid technical support at the June low of $1,179.40. First resistance is seen at the overnight high of $1,258.70 and then at $1,267.00. First support is seen at the overnight low of $1,232.00 and then at Monday's low of $1,214.40.

Silver bears also have the solid overall near-term technical advantage. Prices are in an eight-month-old downtrend on the daily bar chart. Silver bulls' next upside price breakout objective is closing prices above solid technical resistance at last week's high of $20.075 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at the June low of $18.17. First resistance is seen at the overnight high of $19.485 and then at last Friday's high of $19.83. Next support is seen at the overnight low of $18.93 and then at Monday's low of $18.67.

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Read the latest news in gold and precious metals markets at Kitco News.

By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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