Gold Investments Market Update – Gold and Stocks Rally for Different Reasons

Gold has given up some of yesterday’s and the last four days’ gains. Profit taking seems the most likely explanation as the dollar remains largely flat but the weakness in oil may be contributing to gold’s weakness. Continuing unprecedented volatility in markets is leading to further safe haven demand.

Golden gains

Gold touched $829 per troy ounce yesterday, its highest level since October 16th. This means that the yellow metal has gained nearly 13% in 3 consecutive days of trading. The stock market gains have stalled the surge somewhat and it is currently trading at $805 but the sentiment remains bullish and an upswing to $845 is certainly possible in the next week. Silver continues its rally out of a down trend and is currently at $10.16. However, if the metal does not break through the November high of $10.80, there may be a quick pull back. Gold remains oversold and continues to offer real value – both fundamentally and intrinsically. Concerns about the long term health of the world’s reserve currency should see gold remain well supported above $780 (recent resistance) especially as we are likely to get confirmation of fastly slowing US economy in GDP numbers today. The titanic struggle between massive deleveraging of speculative players and unleveraged buyers of physical bullion continues. The leveraged speculators won the first round with the unprecedented wholesale liquidation selling in futures markets but unleveraged physical buyers who are unencumbered by debt are showing themselves as very strong hands. As the strong supply and demand fundamentals reassert themselves, physical buyers who shun the casino of the leveraged futures market and remain properly diversified will likely be handsomely rewarded in the coming months. Particularly if the increasing rumours of a default on the COMEX in the coming months come to pass.

A good day to play FTSE

The FTSE 100 index rose 9.8% yesterday, its biggest ever one day gain, buoyed by news that the US government had agreed to bail out troubled leviathan, Citigroup. Other stock markets followed suit, with the S&P 500 up 4.5% and the pan European Eurofirst 300 gaining 8.9%. Citigroup itself surged by a rather immodest 58% as financial stocks rebounded. As ever the sustainability of these gains is questionable.

Mark O'Byrne
Executive Director