27
Nov
2009

GoldCore Update: Dubai Default Causes Contagion Concerns

Gold
Gold reached new record highs at $1,195/oz yesterday but has experienced the much anticipated correction overnight. Gold is currently trading at $1,157/oz and in Euro and GBP terms, gold is trading at €777/oz and £706/oz respectively. Gold is down some 3% and the correction is likely due to a combination of factors.

After gold’s recent sharp gains, a much needed correction and consolidation was expected and profit taking was due also. The primary factor in gold’s sell off is not risk aversion per se, rather the speculative leveraged players going to cash in the very short term due to turmoil in equity markets due to the uncertainty created in the light of the Dubai default. Sell offs like this have been common when international equity markets sell off sharply. Gold becomes correlated with equities in the very short term but what has happened so far in this bull market and will likely continue (as long as gold remains in a bull market) is that gold generally falls by less in the sell off and then bounces back quicker in the aftermath of the sell off.

Ironically the panic sown from the Dubai default is likely to lead to even more investment demand for gold. Especially as Dubai is just one country confronted by the growing international debt crisis – others include Greece, Spain, Hungary, and Latvia. The potential risk of contagion (particularly in the sovereign debt market) will likely mean that gold’s sell off is again just one more correction in an ongoing bull market.

Silver
Silver was as high as $18.45/oz overnight. Silver has fallen by 3.6% and is currently trading at $18.00/oz, €12.07/oz and £10. 97/oz.

Platinum Group Metals
Platinum is trading at $1,430/oz and palladium is currently trading at $360/oz. While rhodium is at $2,800/oz.

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Mark OByrne