Gold and Silver Consolidate after Recent Sharp Gains

Gold

Risk aversion remains on as European equity markets have followed their US and Asian counterparts lower after yesterday’s poor US economic data. The dollar and yen have rallied today and this is contributing to gold’s slight weakness in these currencies this morning. Gold is higher in Canadian dollars, euros and marginally higher in sterling as these currencies have fallen today. Government bond yields continue to fall to record lows with US Treasuries at their lowest yield in 11 months and German Bunds at record low yields.

Gold is currently trading at $1,230.85/oz, €968.56/oz and £792.79/oz.

Cross Currency Table at 1215 GMT

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Gold is hovering near 7 week highs and in the current uncertain environment it seems like only a matter of time before it reaches new record (nominal) highs. Gold is higher 14 out of the last 16 days and due a breather and a profit taking correction. Gold is looking better and better technically and looks set to have the third consecutive week of higher prices. A higher monthly close for August should lead to momentum traders and others buying again and to consequent higher prices in September.

Gold in USD – 30 Days (Tick)

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Silver

Silver has moved up in tandem with gold since late July but remains very undervalued versus gold on a long term basis. With silver at $18.20/oz, the gold silver ratio is now at 67.52 (meaning 67 ounces of silver can be bought with one ounce of gold) which is significantly above its 1980 ratio low of 17 to 1 ($850 per ounce / $50 per ounce).

Gold has well surpassed its 1980 nominal high of $850/oz, while silver remains less than half of its nominal high in 1980 of $50/oz. A significant amount of silver has been used in industrial applications since 1980 and silver’s large  underperformance versus gold is likely to change in the coming months with $50 per ounce remaining a viable long term price target.

Silver is currently trading at $18.23/oz, €14.34/oz and £11.75/oz.

Gold to Silver Ratio – 1970 to 2010 (Monthly)

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Platinum Group Metals

Platinum is trading at $1,510.50/oz, palladium is at $477/oz and rhodium is at $2,050/oz.

News

(AP) — Wheat prices jumped Thursday as Russia’s persistent, devastating drought raised questions about whether another crop can be planted this fall. Hot, dry weather severely damaged the region’s spring wheat, prompting Russia to ban exports for the rest of the year. Without significant rainfall, fall planting could be in danger in the region near the Black Sea.

(Bloomberg) — Eldorado Gold Corp. Chief Executive Officer Paul Wright told CNBC that he sees the gold price going higher, likely to the level of $1,300 by the end of the year.

(Bloomberg) — China’s gold producers will extend this quarter’s rally as demand for the precious metal increases and inflation exceeds government forecasts, according to Central China Securities Holdings Co. and Guoyuan Securities Co. Zijin Mining Group Co. and Zhongjin Gold Corp., the nation’s two biggest bullion producers, are good investments as consumer prices are expected to rise around 3.5 percent this month, Li Jun, a Shanghai-based strategist at Central China, said in an interview yesterday. Inflation accelerated to 3.3 percent in July, the highest since October 2008.

(Economic Times) – As jewellers sense a disquieting trend of youngsters being disillusioned with gold jewelry and going for the trendy, strategies are afoot to get the younger consumers back to gold buying. The World Gold Council is itself in the fray, working in tandem with industry players to ensure that the trend among youth for other metals and trendy jewellery do not adversely affect the gold retailing industry. "We are targeting the youth with trendy collections, that are light weight, and reflecting the attitude of the youth, and working in tandem with designers to produce new collections that appeal to the youth", says K Shivram, vice president of the World Gold Council. One of the recent moves has been to launch a range of rhodium plated gold jewellery which seems to have captured the fancy of youngsters. "The rhodium plated gold jewellery has a different texture, a different feel and, importantly, is seen as trendy by the youth", says Shivram.

(Bloomberg) — Vietnam gold prices climbed to the highest since June, spurred by higher international levels and more expensive dollars, Thanh Nien newspaper reported, without saying where it got the information. Gold rose to 28.8 million dong ($1,480) per tael yesterday, according to the report. One tael is about 1.2 ounces of gold.

(Himalayan News Service) KATHMANDU: Scarcity pushed the gold price up to Rs 36,450 per tola (11.664 gram) today in the domestic market. "Though, domestic gold price is dependent on international market price and exchange rate between the US dollar and Nepali rupee, today’s price hike is due to scarcity in the domestic market," said said Tej Ratna Shakya, president of Nepal Gold and Silver Traders Association (Negosida). The banks – on central bank’s ‘verbal directives’ – stopped the supply of the precious metal in the market leading to high demand.

(Bloomberg) — Barrick Gold Corp. Chairman Peter Munk said gold prices will extend gains as economies remain unstable and there’s no reason to hedge against a decline. Barrick Gold, the world’s largest producer of the metal, spent almost $5 billion last year to end its hedges against lower prices. Gold, which has gained 12 percent this year and reached a record $1,265.30 an ounce in June, was trading close to its highest in seven weeks yesterday.

Mark OByrne

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