Gold finished last week at $932.50 and was up $7.35 for the week. It has subsequently fallen in Asian and early European trading to below $921 per ounce.
While the dollar is marginally higher, oil has fallen quite sharply <$142.40 down nearly 2% – Light Sweet Crude Oil Future – Combined – AUG08> and this has seen profit taking by gold traders. Traders appear to have had stop loss orders at and just below $930 which exacerbated the move down. Interestingly, while oil is off 2%, gold is only off some 1.15%.
Gold will likely continue to outperform oil in the coming weeks and months as the gold to oil ratio reverts to its post World War II mean average of 15 or 15 barrels of oil to one ounce of gold. Currently it is at near an all time record low at 6.46, or one ounce of gold can only buy 6.46 barrels of oil (based on gold at $920 divided by oil at $142.20). Thus, gold remains extremely cheap vis a vis oil.
Gold’s recent ascent was quite rapid and correction and consolidation can be expected. The 100-day moving average at $915 and previous resistance at $900 should provide strong support.
Today’s Data and Influences
Inflation will remain the ‘topic du jour’ as the Bank of England follows the Fed and ECB in trying to tread the dangerous tightrope of sharply declining growth and rising inflation or stagflation.
With little or no significant data today, markets will keep an eye on the G8 meeting for any developments. The sparse economic calendars in the eurozone and U.S. this week will leave traders looking to comments from central bankers for direction, with Bernanke and Trichet scheduled to speak on a number of occasions over the week.
Silver is trading at $17.87/17.92 per ounce (1200 GMT).
Platinum is trading at $1977/1987 per ounce (1200 GMT).
Palladium is trading at $447/451 per ounce (1200 GMT).