Gold is up in early trading in London this morning. Gold was up $30 to $934 per ounce in trading in New York yesterday and silver was up 50 cents to $18.18 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $934.25, £471.08 and €587.95 (from $906.75, £460.40 and €576.56 yesterday).
With oil reaching new record highs ($112.20), there is likely to be inflation hedging gold buying which will likely see gold challenge resistance at $950 in the coming days.
Gold seems likely to reach resistance at $950 in the coming sessions possibly as early as today or tomorrow, especially after it having an outside day key reversal to the upside yesterday which is bullish from a technical perspective.
The fact that the net long position in the U.S. gold futures market is at a 6-1/2 month low as reported by Reuters is very bullish from a contrarian’s perspective (http://today.reuters.com/news/articlenews.aspx?type=correctionsNews&storyID=2008-04-09T155042Z_01_N04372215_RTRIDST_0_CFTC-METALS-UPDATE-1-CORRECTED.XML).
The fundamentals driving the gold market remain very sound with oil remaining near record highs, the dollar and sterling under pressure and the credit crisis remaining a serious concern. Under these circumstances gold looks very well supported above $880 per ounce. We could see gold consolidate between $870 and $950 in the short term prior to surpassing the psychological $1,000 level again in the coming weeks.
The Bank of England has warned that the global credit crisis is entering a new, dangerous and more serious phase and British banks are attempting to preempt another lending panic by increasing their borrowing facilities with the BoE.
Separately, the IMF slashed its estimates for global growth and warned that the U.S. downturn will last longer than most people expect. The IMF also warned that the UK was the most exposed and could be hardest hit by the credit crisis. Edmund Conway, Economics Editor in the Telegraph writes that “Britain could be hardest hit by the global credit crisis as banks in this country have racked up bigger losses than anywhere else in the world, a new International Monetary Fund analysis shows. The IMF expects British banks to lose more than £20 billion – equivalent to three per cent of gross domestic product (GDP) – from the international meltdown in sub-prime mortgages. American banks, which had been thought to be bearing the brunt of the credit crisis, will lose £72 billion – equivalent to only 1.4 per cent of US GDP. By contrast Japan’s losses are £5 billion and China’s £1.5 billion. European countries using the single currency have lost £61.5 billion – 1.7 per cent of GDP.
The Bank of England cut UK interest rates by 0.25% and sterling remains under pressure.
The ECB is expected to keep rates on hold. If the ECB did cut rates it would mean they are more worried about the credit crisis than inflation – and that would be bullish for gold.
Nobody knows what will happen in the short term and to think otherwise is fanciful speculation and delusion. Short term thinking belongs in a casino and short term thinking and greed have contributed to the current “mother of all crises”, as the greatly missed ex Federal Reserve Chairman Paul Volcker described it yesterday – http://media2.bloomberg.com/cache/vl8TvJRLodUg.asf.
As ever it is best to hope for the best but be prepared for a less rosy scenario and the best way to do that is to be properly diversified and have an allocation to gold and silver bullion within a portfolio.
Support and Resistance
Support is at $880 and $905. A close below $905 could see us retest the recent lows at $880. Resistance is now at $950 and $1,000.
Silver is trading at $18.29/18.36 at 1200 GMT.
Platinum is trading at $2021/2026 (1200 GMT).
Palladium is trading at $457/463 per ounce (1200 GMT).