Gold prices are expected to fall today in a move that will continue the short-term downward trend. Gold should fall below this week’s low at $793.70 and make progress for an eventual break of $777.70. Pressure will come from yesterday’s inability to rally despite bullish reversal pattern support and despite a decent selloff in the stock market. We favor trading gold as a negative affair.

 

  Yesterday’s trade in gold rallied $11.30 at its best levels of the day before reversing and closing $5.00 lower. The reversal was the result of a higher dollar, which was inspired by a stronger-than-expected ISM non-MFG PMI reading. However, the reversal in gold also occurred despite a sharp selloff in the stock market, where S&Ps closed -38.60 and the Dow -344.70. The inability of the gold market to strengthen at a time of need for safe-haven indicates that the underlying trend is negative and that the market will likely continue to trade in that direction.

 

 

Upcoming Metals/Dollar Events

 

Fri - German Industrial Production

Fri - U.S. Nonfarm Payrolls

 

Global Economic & Dollar News

 

  The dollar index traded unchanged at the metals’ open and +0.34 at their close. The dollar was boosted by a stronger ISM non-MFG PMI and rallied despite a sharp selloff in stocks.

·         The ECB left rates unchanged at 4.25%.

·         ECB’s Trichet said that there are upside risks to price stability over the medium term and that CPI will exceed the stability goal for a protracted period. Said he has a very strong concern about possible second round effects. Said the current policy stance is inline with the ECB objective.

·         ECB’s Wellink said that the end of the financial crisis is not yet in sight and will last a couple more years.

·         EU’s Almunia said that the Eurozone economic situation is experiencing serious weakening, although fears of a recession are exaggerated.

·         German Industrial Orders were -1.7% vs. +0.4% expected and vs. -2.9% previously.

·         The BOE left rates unchanged at 5.00%.

·         ADP Payrolls were -33K vs. -30K expected and vs. +9K previously.

·         Non-Farm Productivity was revised to +4.3% vs. +3.5% expected and vs. +2.2% originally.

·         Initial Jobless Claims were 444K vs. 425K expected.

·         ISM Non-MFG PMI was 50.6 vs. 49.5 expected and vs. 49.5 previously.

·         Stocks traded sharply lower based on a downgrade of the chip sector and an earnings warning from Ciena.

·         Fed’s Fisher said that he sees anemic growth in the next couple quarters and warned that commodity price declines may not last. Said that the housing correction has a ways to go.

·         Fed’s Yellen said that the prognosis for inflation has improved and that the better outlook is tied to commodity declines.

 

Precious Metals News Stories

 

·         India’s Nifty Index was -1.3%, China +0.0%, and Japan -1.0%.

·         SPDR Gold ETF Holdings fell 295,513 ounces, or 9.2 tonnes.

·         Indian Demand Remains Strong according to bullion dealers. Said that demand could improve further if prices remain near 11,500 rupees. Nymex gold closed at the equivalent of 11,505 yesterday.

 

Copper News Stories

 

·         Copper Stocks on the LME rose 1,575 MT yesterday.

 

Barclays Silver ETF Trust Holdings

As of 9/3/08

208,051,691 oz

As of 9/2/08

208,051,691 oz

Inception - 4/28/06

20,999,768 oz

Max Size As Amended

320,000,000 oz

 

SPDR Gold Shares ETF Holdings

As of 9/3/08

20,646,733 oz

As of 9/2/08

20,942,246 oz

Inception - 11/18/04

260,000 oz

 

Lease Rates (as of 8/29/08)

 

Gold

Silver

Platinum

1 month

0.19%

-0.14%

1.85%

3 month

0.35%

0.05%

2.85%

6 month

0.54%

0.23%

3.90%

1 year

0.53%

0.19%

5.20%

 

Analysis

 

Geopolitical Tensions/Developments

 

Iraq: Pres Bush is consulting with the Pentagon on troop reductions in Iraq before the end of this year. The reductions would be based on the decline in violence.

Iran: French President Sarkozy warned Iran that it was risking an attack from Israel over its persistence in enriching uranium.

Georgia: The U.S. announced a $1B aid package to Georgia. VP Cheney vowed to stand by Georgia, and called Moscow’s military push an “illegitimate” act that cast grave doubt on its reliability.