Gold
After last week’s more than 3% gain in gold, gold surged to nearly $890.00 in early trading in Asia prior to succumbing to subsequent profit taking. The London AM Gold Fix at 1030 GMT this morning was at $887.25, £453.91 and €573.60 (from $863.50, £434.64 and €556.74 on Friday).

It is hard to see gold falling significantly this week unless there is a sharp fall in oil prices and strengthening of the dollar – both of which seem unlikely. However, gold has surprised to the downside in recent weeks and further consolidation may be needed prior to challenging $900 again. With oil remaining well bid above $125 and geopolitical risk in Nigeria, Lebanon and Iran still of importance, gold looks likely to be well bid at these levels.

Technically, gold acted very well last week with a fall to support at $850 and then a strong bounce and higher weekly close. Silver did likewise (up 2.6% for the week) and a possible positive harbinger for the week to come was the strong rally in the XAU and HUI gold mining indices (up 6.3% and 5.9% respectively). The PGMs palladium and particularly platinum were also stronger with UBS launching a platinum ‘note’ for those wishing to speculate in platinum without owning the underlying physical asset.

Gold seems well supported above previous resistance at the record nominal highs of $850 and at the 200 day moving average at $831 and the short term trend is now up again.

Today’s Data and Influences
The market awaits a host of Fed speakers (including Bernanke) scheduled over the coming week to see their opinions regarding the risks to growth and the burgeoning threat of inflation. There are, in addition, several key economic releases this week. In a very busy week, that could test the dollar’s recent bounce. There is nothing on the economic calendar today and gold will likely take its cue from the wider markets.

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).

Stagflation Threat
Stagflation remains the primary threat to western economies and financial markets and yet bizarrely it remains taboo in much of the financial community. Oil is at $125 and some, including some in Goldman Sachs, are now calling for oil to reach $200 per barrel. The CRB Commodities Index reached new record highs proving the commodity bears wrong once again and showing that inflation is not some short term phenomenon that will conveniently and happily disappear as soon as it arrived. Certainly, not with the central banks helicopters continuing to print paper money like snuff at a wake. Unfortunately, after every good wake comes a serious hangover and this seems the fate of many western economies.

Gold in a Bubble According to Those Who Never Predicted Gold’s Rise in First Place
Those who never correctly predicted oil at over $100 and gold at over $1,000 in the first place continue their mantra that oil and gold are overvalued and are in ‘bubbles’. They were absolutely wrong before and their opinions should not be given any more credence now. These same commentators have never understood the supply/demand fundamentals driving the commodity markets and continue to focus solely on the speculative element. While there is indeed speculative elements in these markets as there are all markets, it is more than arguable that there is less speculation in the precious metals markets than in most markets.

Gold is not in a bubble. It may be in a bubble when it reaches its non inflation adjusted high of some $2,400 per ounce in the coming years (depending on global macro fundamentals at this time) There is little or no hot fast money as was seen in the NASDAQ boom when mass participation and day trading was evident. Or even in the property and ‘buy to let’ mania of recent years.

Gold remains the preserve of the risk conscious and the knowledgeable. It is slow monthly and quarterly money and allocations from individual investors, pension funds and institutions pushing up prices because they want a finite currency and hard asset and need diversification as many remain overweight equities (some dramatically so) and overexposed to property markets.

An important fact unacknowledged by the bears (one of many) is that of $1,000 of investable products across all financial markets in recent years a mere $3 was invested in commodities – and gold is a subset of that 0.3 % allocation to commodities. While this allocation is increasing significantly, it is doing so from a tiny, tiny base and thus remains a fringe investment at best. This is changing and will continue to do so especially given the risky macroeconomic and geopolitical outlook.

Silver
Silver is trading at $16.78/16.83 per ounce at 1200 GMT.

PGMs
Platinum is trading at $2048/2058 per ounce (1200 GMT).
Palladium is trading at $434/439 per ounce (1200 GMT).