Gold prices fell as the dollar rose broadly ahead of a key U.S. employment report and as bullion investors took profits after recent gains. Prices had climbed 4 per cent in the first three trading sessions of 2010. “With the employment report coming in tomorrow, there is a lot of caution in all the markets,” said Bill O’Neill, partner at Logic dvisors. “Gold has had a nice run since the beginning of the year and is due for some consolidation.”

Gold futures fell Thursday for the first session in the past five as jitters that China may raise interest rates and cut global growth pressured commodities and lifted the dollar, reducing the metal’s investment appeal.

Copper and Aluminium Open Interest – Price-wise, 2010 has started with a bang, with both copper and aluminium making strong gains. Interestingly, while open interest for aluminium has picked up in conjunction with rising prices, indicating new long positions have been added, copper open interest has fallen slightly, suggesting that some of the red metal’s recent strength has been due to short covering activity.

• Gold is running into resistance at $1140—$1,142. We expect the market to remain cautious ahead of tomorrow’s non-farm payroll data and as a result profit-taking ahead of the data release might take place.

• We expect large dips in platinum and palladium to be bought.

• After the bearish data, which registered a large build in crude and gasoline inventories, and only a small draw of 233K barrels in the middle distillates, it appears many market participants had to cover short positions.

• The base metals had a very strong day price-wise on Wednesday, with much of the complex making impressive gains. Aluminium had another exceptionally busy day, with over 14,400 lots trading on LME Select, while copper and lead also saw very good volumes. The base metals are a little softer this morning, with prices pulling back after yesterday’s rally.

Gold is running into resistance at $1140—$1,142. We expect the market to remain cautious ahead of tomorrow’s non-farm payroll data and, as a result, profit-taking may emerge ahead of the data. There was good physical selling in gold this morning in Asia. Shanghai arbitrage selling added to the downwards pressure in gold. Support is at $1,126 and $1,116.

After a good rally yesterday platinum and palladium are both trading lower. Both metals have seen a rise in speculative interest ahead of the expected launch of the US based ETF’s as well as gaining support from positive auto sales numbers. We expect large dips in platinum and palladium to be bought. Platinum support is at $1,525 and resistance at $1,575. US ADP employment numbers registered a decline of 84K jobs in December, slightly below the expected decline of 75K. ADP employment figures and tomorrow’s non-farm payroll numbers are highly correlated. However, since March, when markets bottomed, ADP figures have been lower than the NFP numbers every month – by an average of 72K. Should this trend continue in the December figures, we could look at a non-farm payroll number of between 0 and -12K. The market expects zero
change in December.

A better-than-expected non-farm payroll number could see equity markets rally. Looking at the recent correlation between equity markets and precious metals, we expect platinum and palladium to benefit most from good employment numbers.

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