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Comex Gold Eases On Profit-Taking, But Libyan Worries Still Persist

25 February 2011, 1:23 p.m.

 -- PFGBEST gold specialist Mike Daly links the softer tone in Comex gold futures to profit-taking on market expectations that Libyan leader Moammar Qaddafi will not be in power much longer. The metal declined late Thursday when unsubstantiated rumors about Qaddafi began making the rounds. Plenty of traders had profits to book since April gold has risen steadily from $1,310 lows around late January, with political unrest in the Middle East and North Africa one of the catlaysts. "We've never looked back since," Daly says, and the April contract was at $1,408.40 late in the Comex pit session. Still, gold's losses have been limited, with the market consolidating for hours now, since there is still nervousness about what may transpire next in the region. "The reason it's staying sideways is people are saying, 'You know what. He (Qaddafi) is not gone yet," Daly says.

25 February 2011, 01:16 p.m.
 Comex gold futures remain softer late on a day when equities are firmer, yet the metal has avoided a heavier sell-off. “It’s encouraging to me that we are holding onto $1,400,” says Charles Nedoss, senior market strategist with Olympus Futures. If the April futures close above this for the week, it would be “very, very positive” technically, he says. Furthermore, Nedoss reports, the market is well above the major moving averages, which are in the roughly $1,369 to $1,374 region. “That is going to be good support down there,” he says. Late in the Comex session, April gold is $7.60 softer at $1,408.20 an ounce.

25 February 2011, 09:45a.m.
Events in the Middle East and North Africa (MENA) are likely to be constructive for oil, even though it’s hard to say how they will ultimately play out, says Morgan Stanley. Unrest in the MENA region has lifted crude prices in recent weeks, in turn affecting other commodities, including base and precious metals. “We are at a loss to how events in the MENA region will ultimately unfold,” Morgan Stanley says. “However, we see events as constructive oil, even in the best of scenarios, as the focus has quickly returned to the supply side and specifically to spare capacity.” It estimates that Saudi Arabia is capable of increasing production by 1.5 million barrels a day in four to six weeks, although hiking production to “what we believe is Saudi's total production capacity” of 12.5 million may take three months and is likely “very costly and challenging.” Should there be an easing of geopolitical tensions, oil could pull back, Morgan Stanley says. “On the flip side, incremental production shut-ins that challenge available spare capacity, should unrest spread, could lift prices significantly.”

25 February 2011, 09:31a.m.
- There is potential for downward pressure on oil prices, particularly as investors start to discount the likely fall of Libyan leader Libyan leader Moammar Qaddafi, says MF Global. If so, this should provide some support to base metals and U.S. equity markets, “at least until the next flashpoint appears on the radar,” MF Global says. A report from commodities analyst Edward Meir says the situation in Libya “seems to be careening towards some sort of climax, although in fits and starts.” The Libyan leader finds himself increasingly isolated as more members of his regime desert him and as more cities fall to the rebels. Meanwhile, Saudi Arabia has taken steps to up oil production to make up for lost output in Libya.  “Part of the problem here is that Libyan oil is of the ‘sweet’ variety and not compatible with most Saudi grades, but the Saudis have reassured European refiners that they would be able to offer an equivalent amount of ‘Arab Extra Light,’ which is close in composition, or failing that, blend some of other grades to get the desired purities,” MF Global notes.

25 February 2011, 09:05 a.m.
Base metals collectively are bouncing although political turmoil in North Africa and the Middle East, which for much of the week pressured prices as crude oil rose, remains a concern, says Commerzbank. Downward pressure on base metals eased “considerably” Thursday and they are higher so far Friday. Support came when crude oil retreated from its highest level in more than two years. “Secondly, friendly equity markets in Asia have helped metal prices to gain further ground this morning,” Commerzbank says. Copper is trading above $9,600 a metric ton again, more than $300 above Thursday’s low. Still, “the unrest in North Africa and the Middle East and the resulting uncertainty and risk aversion are likely to remain the dominant factor for metal prices at present.”

25 February 2011, 08:32 a.m.

 While future gold and silver direction will hinge how geopolitical and economic events unfold, one key for the metals will be the extent of any price inflation likely to occur, says George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. “Let’s face it, if you drive, you eat and you wear clothes, you are about to see some inflation next year,” he says. Commodity prices collectively, including grains, crude oil and cotton, have risen in recent months.

25 February 2011, 08:25 a.m.
 MF Global has raised the objective on its long position in Comex gold while at the same time describing Friday’s direction as a “tough call.” A report from analyst Tom Pawlicki says April gold still has the potential to advance to the Dec. 7 high near $1,434 over the next few days, with support coming from growth in investment, geopolitical factors, and inflation threats. “However, the approach to that resistance level is now combined with a potential for bottoming action in equities and a possible climax in Middle East tensions, which can thus force a correction back down toward the 50-day (moving average) near $1,374.” Further background pressure could come from any hawkish comments from central bankers. Still, MF Global concludes: “We favor raising the objective on our long position to $1,500 from $1,435.”

25 February 2011, 08:15 a.m.
Global markets are a little calmer so far Friday morning after crude oil retreated from Thursday highs that took April Brent just below $120 a barrel and West Texas Intermediate over $103, levels not seen since 2008, says Janet Mirasola, managing director with R.J. O’Brien & Associates. Still, political tensions remain and oil will be the gauge for reaction to headlines form the Middle East and Africa.  Equity markets have attracted bargain hunters. Still, “global equities and other assets remain vulnerable to further disruption as the problems in the Middle East and Africa are far from over and just a few phone calls will be unlikely to be able to solve the crisis,” she says. The immediate focus now shifts to U.S. economic data, but investors likely be cautious about large-scale risk positions over a weekend due to potential for news that could disrupt markets. “Continue to watch those headlines for help with short-term direction while adding safe-haven assets like the Shiny One to any portfolio in need of a ‘hedge,’” she concludes.

25 February 2011, 08:09 a.m.
Most commodities have bounced in markets “a bit more comfortable with the notion” that Libyan leader Moammar Qaddafi’s rule may be in its final days, although such a development could hurt crude oil and gold, which have risen during the recent political turmoil in the country, says Dennis Gartman, publisher of The Gartman Letter. “While confusion reigned regarding Libya and crude oil prices spiked violently higher, there was concomitant downward pressure upon grains, upon base metals, upon other raw materials prices. But now, with Gaddafi all but marginalized, oil prices are weakening while other commodities prices are rising. Quiet is bearish for gold and oil; it is bullish for copper, grains, the 'softs' et al.”