Daily Market Update

Gold Investments Market Update

Gold was down $1 to $944.70 per ounce in trading in New York on Friday but silver was up 10 cents to $18.00 per ounce. Gold rose close to new nominal record highs in early European trading ($951.90) and silver rose to new 27 year highs ($18.15). Last week gold was up by more than 4.5% (more than $40) as fears regarding burgeoning inflation and indeed stagflation began to permeate financial markets. Silver was even stronger and was up by 5% on the week.

Gold remains near new record nominal highs in British pounds and euro. The London AM Fix at 1030 GMT this morning was at $947.50. Gold fixed near new record highs at £482.26 and €639.77.

How High Can Gold Go? – CNBC Interview with Stephen Flood of Gold Investments
“Gold is doing exactly what it should do in this market: it is reacting to risk. People are turning to it as a safe-haven asset,” according to Stephen Flood from Gold Investments.

The psychological round number of $1,000 looks set to be challenged in the next 2 to 4 weeks. In the same way that $100 oil was targeted and reached in recent weeks. Gold is only some 5.5% below $1,000 per ounce now and last week alone gold was up 5%.

Commodities such as oil have already reached and surpassed their previous all time inflation adjusted highs and it is only a matter of time before gold does likewise. The question of gold reaching its inflation adjusted high of some $2,400 per ounce is not a question of if rather of when. We will likely see a huge blow off surge as seen in 1980 and a price spike in a short 1 or 2 year timeframe or a slower more gradual rise in the next 5 to 10 years.

Deteriorating Economic Fundamentals
The latest survey by the National Association for Business Economic shows that because of the deteriorating economic fundamentals more and more economists foresee the U.S. falling into a recession. Martin Crutsinger, the AP Economics writer, writes that “job growth is faltering, consumer confidence plunging. The fallout from the worst housing slump in a quarter-century grows. Wherever you look, the signs are unmistakable that the economy is in trouble.”

Oil prices rose above $99 again this morning on the Turkish/Kurdish tensions in northern Iraq – a further sign of continuing geopolitical risk.

Stagflation’s toxic combination of slowing economic growth and rising inflation is clearly emerging as a real threat to the U.S. and indeed global economy.

The FT’s lead front page article reports that “the world’s largest humanitarian agency, the UN’s World Food Programme (WEF) agency, is planning to ration food aid because of spiralling agricultural commodity prices. Food prices are rising on a mix of strong demand from developing countries; a rising global population; more frequent floods and droughts caused by climate change; and the biofuel industry’s appetite for grains, analysts say. Soyabean prices on Friday hit an all-time high of $14.22 a bushel while corn prices jumped to a fresh 12-year high of $5.25 a bushel. The price of rice and wheat has doubled in the past year while freight costs have also increased sharply on the back of rising fuel prices.

Gold’s safe haven qualities are again coming to the fore given the very significant burgeoning global inflationary pressures and the deteriorating macroeconomic fundamentals.

Jim Rogers on Commodities and the 21st Century being the Chinese Century
Jim Rogers was interviewed on RTE Radio this morning – http://www.rte.ie/business/2008/0225/mibusiness_av.html .

ASIA THE NEW US – ROGERS – Jim Rogers co-founded the Quantum Hedge Fund with George Soros in 1970 and watched its value appreciate by 4,200% in a decade. At 37 he was able to retire and travel around the world on his motorcycle – his adventures were recorded in a bestseller. Known as one of the shrewdest investors in the world, Mr. Rogers is in Dublin for a speaking engagement organized by Merrion Capital.

Jim Rogers says he will be telling the clients of Merrion Capital today that the world has changed dramatically and that Asia is the wave of the future, with China destined to be the ‘great’ country of the 21st century in the same way as the UK was in the 19th century and the US in the 20th century. He says that he will say the US dollar is doomed and they should be making plans to avoid or get out of it as much as they can. He says the only bull market he knows of at the moment is commodities and predicts that recent rises in the prices of oil and wheat is only the beginning.

Mr. Rogers is now living in Singapore and says that he is not only saying that Asia is the wave of the future, he is acting on it. He says that to this end, his four-year-old daughter is now fluent in Chinese, after being taught by her Chinese nanny. ‘The best skill that I can give someone born in 2003 is to be able to be fluent in Mandarin and in things Chinese,’ he states.

On commodities, he says that prices are going to go through the roof. Mr. Rogers says that he would urge investors who buy things that grow to buy twice has much as they had planned and to start stockpiling.

Support and Resistance
After a short healthy consolidation in the $850 to $935 range, gold has broken out with a weekly close above $935 per ounce which is very bullish. Strong support in gold is now seen at $890 to $900. Short term support is at $935-940 and below that at $915. The weekly close above $935 was very constructive and should see us challenge $1,000 per ounce in a very short period of time.

Silver is trading at $18.04/09 at 1200GMT. Silver remains extremely undervalued and $25 looks likely in 2008. Silver’s nominal high of $50 per ounce is likely to be reached in the next 3 to 7 years.

Platinum is trading at $2143/2153 (1200GMT).
Palladium surged to over $509/515 per ounce (1200GMT).

Mark O'Byrne
Executive Director


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