Gold Investments Market Update

Gold
Gold was down $18.20 to $874.70 per ounce in trading in New York yesterday and silver was down 45 cents to $16.57 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $867.75 £440.77 and €557.72 (from $886.00, £447.50 and €569.23).

Fed’s Interest Rate Decision
The Federal Reserve’s much anticipated interest rate decision remains the central focus for the markets today. The dollar has continued to strengthen this morning, most equity markets and commodity markets internationally are down. Markets expect that rates will be cut by 0.25% to 2.0%, though the tone of the statement will be closely watched. There is much speculation that the FOMC will indicate that it is coming to the end of its easing cycle due to the emergence of significant inflationary pressures.

Monetary policy remains extremely loose and expansionary and the printing presses remain in full effect. Thus negative real interest rates look set to be continue for the foreseeable future which is obviously bullish for gold..

Another Healthy Correction and Consolidation
Gold continues to sell off on oil weakness and dollar strength. However, we are confident that this is another short term correction in a long term secular bull market. Gold remains up 27.35% in the last year and has outperformed nearly all asset classes since the outbreak of the credit crisis. Gold has risen 33% from $650 in mid August 2007 to $865 today (see Technical Analysis below) which is a sterling performance by any standards and has led to a typical bout of profit taking and healthy consolidation. Gold has again proven it’s safe haven credentials over the medium to long term and will continue to do so.


The economic news yesterday was very bad with sharply falling house prices and consumer confidence. US advance GDP for Q1 and the Chicago PMI are expected to be poor. Gross domestic product probably increased at a 0.3% annualized rate in the quarter after a 0.6% gain in the fourth quarter, according to a survey of economists conducted by MarketWatch. But the U.S. economy is already in recession and contracting despite government manipulation and hedonic adjustments of inflation and growth statistics. And this is the first recession since the 1970’s where declining growth has been met with rising inflation – classic stagflation – which will again result in gold outperforming other asset classes.

Technical Analysis
Trend support at $893 has now been broken and the 1st April low at $870 is proving to be short term support again.

Any close below $870 would open up a retest of the 22nd Jan support/8th Nov resistance at $845/$850. Coincidentally this is also very close to the 50% Fibonacci retracement of the move from the break-out at $686 to the high at $1030, approximately $855. This should prove to be significant support.

A break of these levels will open up a move towards the 200 day moving average at $822, with the 100 day moving average having been broken at $903. A fall below the 200 day moving average would ultimately find support at the bottom of the Oct 07 consolidation at $775.

Trend resistance is currently at $925 which is also back above the 100 day moving average. A break of this would be very bullish and should mark the start of the next upward move, paving the way for a retest of the 17th March highs.

Silver
Silver is trading at $17.70/17.80 at 1445 GMT.

(If you cannot see this graph, click here)

Contrary to some analysis which claims silver is overvalued we continue to believe silver is very undervalued and will at least reach it’s nominal high of $50 per ounce in the coming years.

PGMs
Platinum is trading at $1903/1923 per ounce (1200 GMT).
Palladium is trading at $414/419 per ounce (1200 GMT).

Mark O'Byrne

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