Daily Market Update

An All-Time High Weekly Close Sets Gold Up for New Record Highs

Gold

Gold rallied on the open in Asia and has maintained those gains in early trading in Europe as the dollar has. Last week’s all time higher weekly close was important technically and means that gold’s technicals remain strong after its recent weekly and monthly (May) higher closes. Indeed, momentum traders and those making "the trend their friend" could push gold to new (nominal) highs in the coming days.

The medium term trend clearly remains up, not to mention the long term trend with the last 6 quarters of higher prices and the last 10 years of rising prices. Until this momentum is disrupted with a series of weekly and monthly closes, gold will remain in secular bull market.

Gold is currently trading at $1,230/oz and in euro, GBP, CHF, and JPY terms, at €1,008/oz, £838/oz, CHF 1,400/oz, JPY 113,241/oz respectively.

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International economic data in recent weeks has been largely positive but recently some US economic indicators have begun to flash warning signals.

Last week, the jobs data, deficit figures and retail sales figures were worse than expected. Those concerned about the risk of a double dip recession may be prescient when they warn that the recent recovery is not sustainable and is based on bailouts, tax cuts and government stimulus. It seems increasingly likely that another economic slowdown looms – the question is how severe that slowdown will be and whether it will lead to a double dip recession, and in a worst case scenario, some form of economic depression.

The most prescient statistical guide to the health of the US economy and an important leading indicator turned negative on Friday. The ECRI Weekly Leading Index, a composite index of key USA weekly economic series, has for the past five decades been one of the most accurate forecasting tools and its negative reading may signal that a double dip recession looms.

While all the focus has been on European sovereign debt issues, the not inconsequential matter of very poor US public finances and many US states close to bankruptcy has been largely ignored. This could change soon as US state and local (municipal) borrowing as a percentage of US GDP has risen to an all-time high of 22%. Massive debt levels are not being tackled and medium and long term liabilities may not be able to be serviced, leading to defaults and a debt crisis similar to that seen in the eurozone in recent weeks.

This poor fiscal backdrop is positive for gold and will lead to continuing safe haven demand – especially if investors perceive that local and national governments will attempt to avoid defaults by printing money and inflating away the very large and growing liabilities.

Silver

Silver is currently trading at $18.43/oz, €15.09/oz and £12.54/oz.

Platinum Group Metals

Platinum is trading at $1,560/oz and palladium is currently trading at $457/oz. Rhodium is at $2,425/oz.

Mark OByrne

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