Gold Investments Market Update

Gold
The sharp sell off in the precious metal markets continued yesterday with gold down $13.80 to $848.90 per ounce in trading in New York yesterday and silver down 38 cents to $16.12 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $854.25, £429.92 and €551.31 (from $863.50, £434.64 €556.74).

Should there be a continuance of the recent trend of dollar strength and oil weakness today then we could see gold test the 200 day moving average at $823.

Gold seems well supported above previous resistance at the record nominal highs of $850 but the short term trend remains down and we could test the 200 day moving average. Physical demand from China, India and wider Asia is very robust at these levels and should result in gold basing and consolidating at these levels prior to rechallenging $900 and $1,000 per ounce in the coming weeks.

Today’s Data and Influences
The market awaits today’s monthly U.S. payrolls report to see if the labour market continues to deteriorate. After yesterday’s poor jobless claims number, economists polled are forecasting a drop of 75,000 jobs last month and a rise in the unemployment rate to 5.2 percent from 5.1 percent.

The long term technical charts remain positive and absolutely nothing has changed with regard to the long term fundamentals of the gold bull market which will ultimately be dictated by the laws of supply (falling) and demand (rising – particularly investment demand).

Irrational Exuberance Again
Markets have entered a new irrationally exuberant phase where risk is again being massively discounted once again and the cheerleaders put on the blinkers. Denial is rampant and the word ‘stagflation’ is verboten despite it being an increasingly likely reality. It is important to remain cognoscente that the U.S. is suffering from ever-increasing credit losses for both consumer and commercial loans due to a weakening economy and ongoing housing crisis. The UK, Ireland and Spain face similar issues.

The U.S. is likely already in what will most probably be a severe recession. The notion that the worst of the credit crisis is over is positively delusional. Indeed the next phase of the crisis will be even more severe as the Alt-A mortgage market implodes it may make subprime crisis look like small beer. We are clearly in the end of the beginning phase rather than the beginning of the end phase, as permabulls would have us believe, and risk aversion and long term diversification into gold remains prudent.

Silver
Silver is trading at $16.20/16.25 per ounce at 1200 GMT.

PGMs
Platinum is trading at $1860/1870 per ounce (1200 GMT).
Palladium is trading at $410/415 per ounce (1200 GMT).

Mark O'Byrne

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