Daily Market Update

Gold in Euros in Correction – New Record Highs in Euros Likely


Gold continues to consolidate above the $1,200/oz level and traded in a range between $1,207/oz and $1,215/oz overnight in Asia. Gold has risen slightly in European trade as the dollar has come under pressure. The poor retail sales have created concerns about the health of the US consumer and the other poor recent data on jobs and trade and budget deficits may see the dollar come under pressure again. Support for gold is at $1,195/oz and resistance is at $1,217.90/oz.

Gold is currently trading at US$1,213.55/oz. In EUR & GBP terms the metal is at €947.32/oz and £790.66/oz respectively.

Gold in EUR - 3 Month (Daily) - Showing Support (Green line) and Resistance (White line)

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After the euro's recent rally, gold in euros fell from the record high (nominal) high of €1,040/oz back to €948/oz. Support can be seen at the €936/oz (green line). A fall below this level of support could lead to a pullback to €900/oz.

However, given the degree of banking system and sovereign debt risk in the eurozone, this seems extremely unlikely. Especially as the risk of a European sovereign default remains high and the possibility of a eurozone member leaving the single currency remains real. This would obviously lead to a new crisis in the eurozone which would see the price of gold in euro terms surge.

Gold In Euros - Monthly (10 Years)

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The level of macroeconomic, systemic and monetary risk in Europe and internationally today is far greater than that experienced in the stagflation of the 1970s. Thus, gold performing as it did in the 1970s and rising by more than 25 times in less than 10 years (from $35 in 1971 to over $850/oz in 1980) remains a real possibility.

Gold in euros was trading at less than €300/oz at the dawn of the millennium and given the significant risks mentioned above, not to mention worsening fiscal situations in the UK, the US and most western nations, it seems quite possible that gold could rise to €7,500/oz in the coming years.

This may seem outlandish and overly bullish now, as similar sentiments about gold would have in 1974 when the metal had risen from $35 to $200/oz. Bull markets tend to surprise even the most bullish and arguably the challenges facing the international financial and economic system are more bullish for gold today than they were in the 1970s.

Mark OByrne


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