Research Pit

[Jagman]

GOLD: With the rally yesterday it would seem that flight to quality and inflationary expectations took over from the physical demand theme. For the bull camp, the shift in focus comes in the nick of time, as the macro economic or physical demand tilt might come into question today in the wake of a sharp setback in US employment levels. With the Dollar under significant pressure and the Fed taking every opportunity to posture against inflation, one would expect gold to be in strong favor. The terrorist warning for New York seemed to give gold support in Tokyo overnight but the magnitude of the gains overnight appear to have been reduced by holiday closures. We have to assume that the path of least resistance is up, especially if the Dollar gets hammered today in the wake of the monthly payroll report. However, it might not be in the best interest of bull camp to see disastrous US payroll readings this morning, as that might temper the physical demand expectations and in turn that could also dampen inflationary expectations. With the Press circulating $500 gold targeting yesterday and floating a $700 long term target this morning, it certainly seems like the bull case is heating up and that should attract fresh buying interest in gold. Some in the stock market are concerned that the Fed is locked in on a significant extension in the rate hike pattern and some are wondering if the US economy can handle the inflation medicine. In the near term, gold has an upward bias, but the outlook for the economy could serve to reduce the upward pace of price gains. Critical support has moved up to $475 but more significant support is seen down at $472.

COMEX GOLD (DEC) 10/07/2005: Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The market now above the 18-day moving average suggests the longer-term trend has turned up. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next downside target is now at 466.9. The next area of resistance is around 478.4 and 480.6, while 1st support hits today at 471.6 and below there at 466.9.