Gold Investments Market Update

Gold
Gold is down slightly in early trading in London this morning. Gold was up $13.80 to $923.10 per ounce in trading in New York Friday and silver was up 38 cents to $18.09 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $921.00, £465.95 €584.65 (from $914.70, £460.27 and €582.17 yesterday.

Gold has fallen in London most probably on profit taking but looks well supported due to dollar weakness, oil back near $110 a barrel and inflationary concerns. This is leading to strong physical demand internationally at these levels (as seen in recent flows particularly into the ETFs – the silver ETF alone has increased by a significant 5 million ounces alone in recent days).

Today’s release of the minutes of the last FOMC meeting may set the tone for the day. There is speculation that FOMC fears regarding significant inflationary pressures could result in interest rates not being cut as aggressively at the end of the month. U.S. pending home sales are again expected to be weak and this should support gold.

Gold ETFs
The latest gold ETF is being launched in Dubai and it too is expected to lead to a significant increase in demand for gold. Gold held by ETFs, listed on the London, New York, Johannesburg and Australian stock exchanges, exceeds 805 tonnes worth about $23 billion and accounts for about 90 percent of all gold ETFs backed by physical bullion. 805 tonnes is more than all the gold held by the People’s Bank of China and double the latest in a long line of mooted IMF gold sales.

IMF Gold Sales
More rumoured gold sales from the IMF failed to suppress the price of gold yesterday. These rumours have been doing the rounds for many months and they have failed to affect the market and besides possible short term sell offs they will continue to have little impact on the gold market. Firstly, as the Times of London pertinently notes, “gold sales could run into heavy opposition from the US Congress, where some senators and representatives, especially among Republicans, are hostile to the fund and its role. Washington’s powerful sway over the IMF means that, in effect, gold sales could not go ahead without Congressional approval allowing the U.S. director on the IMF board to agree to such a sale.” This remains a significant stumbling block and one largely ignored in some of the coverage of the story.

The last time similar proposals were mooted we pointed out how the IMF is committed to and clearly outlines that
“The Fund has a systemic responsibility to avoid causing disruptions that would adversely impact gold holders and gold producers, as well as the functioning of the gold market.”
“The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.”
http://www.imf.org/external/np/exr/facts/gold.htm

UK House Prices Fall Sharply
The UK housing market has taken a sharp turn for the worst with HBOS reporting a 2.5% fall in house prices, the largest monthly fall in UK house prices since 1992. House prices were forecast to fall just 0.3%. With all lenders having withdrawn 100% mortgages, borrowers will be severely hampered from entering the property market which is likely to put further downward pressure on property prices.

Sterling was under pressure overnight, with the sterling/euro rate back above GBP 0.79 ahead of the BoE rate decision late in the week. The psychological and technical 0.80 level will likely soon be breached and with house prices falling sharply, rates will be cut.


Sterling will also come under pressure versus gold in the coming months and this latest sell off should be seen as a great opportunity. Gold below £500 per ounce is cheap and will be seen as such in the coming years when gold reaches its inflation adjusted high in sterling of well over £800 in the coming years.

Support and Resistance
Support is at $885, $900 and $910. Resistance is at $950 and $970.

Silver
Silver is trading at $18.01/18.06 at 1200 GMT.

PGMs
Platinum is trading at $2016/2026 (1200 GMT).
Palladium is trading at $452/479 per ounce (1200 GMT).

Mark O'Byrne

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