-->Gold specs flushed out weak longs in thin market conditions, but market proved its rebound ability.


Gold: News: South Africa's gold output slid 7.1 percent from a year ago in the three months to end-June 2003 and edged up 0.7 percent to 92,981 kg from the previous quarter, the Chamber of Mines of South Africa said on Thursday. For the first six months of the year, the chamber said, gold production declined five percent to 185,295 kg."Higher production costs, combined with lower rand revenues placed a significant profit squeeze on the industry -- with particular pressure on marginal mines," the chamber said in a statement. (Reuters)

Trading: Yesterday's am fixing was again under $380 and the euro felt heavy. A slow day was expected on the trading floor, as the mood was quiet due to the 9/11 anniversaries. There were no shows in the pit and the trading was interrupted at several occasions. Gold opened with light fund selling, which was later followed by stop loss hunting. It was a surprising but successful endeavour down to $375 before the 20 minutes of silent break. After the reopening the selling was gone and the yellow metal started to climb up the hill again. Short covering pushed the market back up to the first resistance of $377.50 which did not hold for long and the market kept climbing in a steady manor to post new highs only to see light selling into the close. With weak longs out the market the precious metal was holding the closing levels into the European opening, despite some selling ahead of the Tokyo long weekend.

View: Speculators may try to repeat the to test the $375 support again, however the market conditions may be different this time, while playing the market from the long side is in investors mind more than ever. The long term up trend buying continues to attract new money. A closing over $380 would signal a strong performance for next week's trading.

Silver: Trading: Silver felt being left alone the other day made its way back on the scene with a strong commitment, especially as it was unimpressed of the sell-stop hunting play in Gold. Like the past 5 days it opened on the lows and as expected, started on a very quiet tone for the first couple of hours. After holding $4.26 initially it finally broke this important level and rallied on some commission house stop loss and US Investment bank buying. Once the high was printed the buying tried up a bit and Silver gave up some of it gains quietly, still holding the $5.29 level. The rest of the day can be described as nervous trading between $5.30 and $5.33. During Asian hours silver was offered from the opening on but mirrored the picture of New York by holding the $5.29 support, where Europe took it over and trading quietly around $5.30

Options: While the 1-year gold volatilities came off a hefty half percent, silver longer term volatilities starting to rise.

Forwards: Rates are approx 15 basis points lower in the 3-9 month area.

View: Silvers strong showing by taking out further resistance levels should lead to further gains as speculators are tempted to get into the vacuum of all other buoyant metals and commodities. We expect further volatility in its new range, which could be found between 5.09 /5.40 and do not expect a collapse in price while all the other metals continue to attract speculative interest.

Trading: After a short dip down to $696 Platinum was able to rebound while Palladium retested the lows from the day before of $217.50. Platinum rates easing further from the other days 150 basis pts surge on TOCOM.

View: Today's COTR report will show again, that speculative positions are still large by historic standards, however the absolute levels of speculative positions are small. In illiquid markets such as these, platinum and especially palladium could rally materially if a few tens of millions of dollars of buying were seen. Speculators are still taking dip as buying opportunities.

Nice weekend

Andy Maag, UBS Precious Metals, Geneva