Today’s trade in precious metals should hold in a relatively mixed range similar to that of the last several days. Support will come from the gold market’s ongoing probe of new three-week highs, tensions in Georgia, and from potential strength in oil due to the approach of Hurricane Gustav. Pressure will come from the resilient dollar and from technical pressure in gold and silver at $846.40 and $13.64 respectively.

   The gold and silver markets could potentially trade higher today but key resistance in gold at $846.40 and silver at $13.64 will have to be removed. The ongoing probe of both levels indicates that buying interest still remains. Geopolitical issues will offer a supportive backdrop, as Russia’s recognition of independence in South Ossetia and Abkhazia was met with condemnation by the White House and G7 foreign ministers. Russia’s recent threats against Poland also strike a chord of geopolitical tension. Finally, the NHC shifted the path of TS Gustav westward on Tuesday and toward oil production areas in the Gulf of Mexico. Any continued strength in oil prices should help precious metals on an inflationary basis.

   Pressure could come from the resilience in the dollar index. The dollar fell 0.50 points at the start of yesterday’s trade but rebounded by the close based on stronger-than-expected durable goods orders. The combination of stronger U.S. and weaker European data will help to reinforce the five-month uptrend in the dollar. Technical pressure will be offered in gold from the continuation chart’s May 2nd low at $846.40 and in silver from the Dec 17th low at $13.64. Silver has consolidated below that level as resistance in the past week (chart below). Also significant is the decline in open interest in the two weeks since the Aug 15th bottom. While prices have advanced 65.5 cents through yesterday’s close, open interest has declined 13,862 contracts. The indication is that short-covering has boosted prices rather than genuine buying interest. Such trends typically indicate that the longer-term downtrend will eventually resume.

Trades:

None

 

Upcoming Metals/Dollar Events

 

Thu - Eurozone Industrial Survey

Fri - Japanese MFG PMI

Fri - Japanese CPI

Fri - Japanese Unemployment Rate

Fri - Chicago PMI

 

 

Global Economic & Dollar News

 

  The dollar index traded -0.53 at the metals’ open and -0.10 at their close. The dollar initially fell based on hawkish comments from ECB’s Weber, but recovered through the US session based on stronger durable goods numbers.

·         ECB’s Weber said the rate-cut discussion is premature and that the ECB would reconsider rate hikes if the outlook brightens at year end.

·         German Import Prices were +0.6% m/m vs. +0.5% expected.

·         Italian Household Confidence was 99.5 vs. 96.0 expected and 95.8 previously.

·         JP Morgan said that Asian currency weakness has just started. Said the flow of money will come out of Asia and move into dollars.

·         Fed’s Lockhart said that current Fed policy is consistent with an easing in overall inflation and that both headline and core inflation will ease over rest of 2008 & 2009. Said that he’s comfortable with where rates are.

·         U.S. Durable Goods Orders were +1.3% vs. unchanged expected. Non-defense capital goods ex-aircraft were +2.6% vs. -0.1% expected and vs. +1.2% previously.

 

Precious Metals News Stories

 

·         India’s Nifty Index was -1.1%, China -0.3%, and Japan -0.2%.

·         Strong Physical Demand was noted again overnight by buyers in India and Asia.

·         Russian Gold Output rose 9.5% in Jan-Jul to 84.13 tonnes.

·         IMF Voting Rights and Gold Sales were approved by Germany’s federal cabinet.

 

Copper News Stories

 

·         Copper Stocks on the LME rose 950 MT yesterday.

 

Barclays Silver ETF Trust Holdings

As of 8/26/08

208,145,125 oz

As of 8/25/08

208,145,125 oz

Inception - 4/28/06

20,999,768 oz

Max Size As Amended

320,000,000 oz

 

SPDR Gold Shares ETF Holdings

As of 8/26/08

20,942,246 oz

As of 8/25/08

20,942,246 oz

Inception - 11/18/04

260,000 oz

 

Lease Rates (as of 8/22/08)

 

Gold

Silver

Platinum

1 month

0.17%

-0.15%

1.85%

3 month

0.35%

-0.03%

2.85%

6 month

0.54%

0.23%

3.90%

1 year

0.53%

0.19%

5.20%

 

Analysis

 

Geopolitical Tensions/Developments

 

Georgia: Russia declared independence of the two Georgian republics of South Ossetia and Abkhazia. Russian president Medvedev said he would go to any length to defend the republics and that he’s ready for a new cold war.

Iran: Iran said that it can hit Israel with missiles if it is attacked.

Iraq: The U.S. will hand over security control of Iraq’s Anbar province to the Iraqi government within a few days.