Fed chief's testimony inspires precious metals markets

Published Saturday, February 11, 2012

The testimony from Fed Chairman Ben Bernanke to the Federal Open Market
Committee (FOMC) has been the major inspiration for the precious metals market
last week. The financial world is obviously also looking very closely at any
potential solution concerning the Greek debt situation. It appears that the markets have
learned to treat announcements of agreements involving Greece with a pinch of salt
and prefer to wait for deliverables, according to the latest precious metals report by
Gerhard Schubert, Head of Precious Metals, Emirates NBD.

Gold: US$1722.00 – down US$4 since last week. Gold has lost US$17 over the last two
weeks, but it is still up a little bit more than ten per cent on the year so far. Gold
experienced a difficult start at the beginning of the week with prices on Monday and
Tuesday testing the former support level of US$1710.

This picture changed on Tuesday evening, following the Fed Chairman’s testimony to
the FOMC. This inspired a lot of short covering and fresh longs, as can be seen from the
statistics of the CME positions. Gold prices did manage to rally up to US$1750 but failed
to stay above that level. The Fed driven rally fizzled out on Thursday, and Friday
morning’s heavy selling in Europe pushed Gold under US$1730 level. Gold traded down
to US$1706 before recovering and managed to close at US$1722 for the week. The
support levels on the downside are the 100 and 200-day moving averages respectively
at US$1680 and US$1660. Gold would need to break the resistance at US$1764 before
a new trend can be established.

Option volatilities midrates: Gold atm (at the money)

1 month 17.50% down 0.50%

3 month 19.50% down 1.00%

6 month 21.50% down 0.80%

1 year 23.50% down 0.50%

EFP Spot Gold to April Comex: US$2.00

ETF: Holdings are at 2430 tons overall, an increase of just 1 ton

Support: 1680 and 1660 Resistance: 1764 and 1787

Silver: US$33.60 – down US$0.05 since last week. Silver is down 5 cents on the week
but this only tells half the story. Silver came under pressure early in the week, trading
down to 33.00 level before recovering. Tuesday evening’s comments from Fed
Chairman Ben Bernanke to the FOMC were instrumental in Silver prices recovering late
on Tuesday evening, and the rally continued on Wednesday with Silver trading well
above US$34. However, the resistance level at 34.65 could not be broken and the
momentum got lost over the rest of the trading week. Silver finishes the week nearly
unchanged and still holds well above the 100-day moving average.

Option volatilities midrates: Silver atm (at the money)

1 month 34.50% down 4.50%

3 month 37.00% down 3.00%

6 month 38.00% down 3.00%

1 year 39.50% down 2.00%

EFP Spot Silver to March Comex: US$ minus 2 cent

ETF: Holdings are at 15,130 tons, an increase of 80 tons

Support: 33.00 and 31.75 Resistance : 34.65 and 34.93

Platinum: US$1652 – up US$32 since last week. The on-going strike situation in South
Africa coupled with a slight improvement in global economic outlook has led to this
strong performance during the last week. The discount to Gold has shrunk to US$65 per
ounce, which reflects the lowest level since August/September 2011. Specifically, the
strike situation has been the main ingredient for this "white metal" led rally. There has
been speculation from other analysts that Platinum might be able to erode the
differential to Gold even further, if these weekly strike related losses of 3000 ozs
Platinum, specified by Impala Platinum, carry on for a longer period of time.

Option volatilities midrates: Platinum atm (at the money)

1 month 21.00% unchanged

3 month 24.00% unchanged

6 month 25.50% unchanged

1 year 27.00% unchanged

EFP Spot Platinum loco Zurich to April NYMEX: US$2.75

ETF: Holdings are unchanged at 46 tons.

Support: 1600 and 1550 Resistance: 1680 and 1700

Palladium: US$700 – down US$5 since last week. Investments in Palladium ETF’s have
helped to keep the Palladium price at this elevated level. The holdings grew by two tons
over the last week, and that has been the first meaningful rise in inventory for a
considerable length of time. We are not reading anything into this increase but it is
good to see this rise, in a week which was dominated by the moves of Platinum and
Gold.

Option volatilities midrates: Palladium atm (at the money)

1 month 31.00% unchanged

3 month 33.50% unchanged

6 month 35.00% unchanged

1 year 36.00% unchanged

EFP Spot Palladium loco Zurich to March NYMEX: US$0.40

ETF: Holdings have increased by 2 tons to 58 tons

Support: 650 and 644 Resistance: 725 and 740