Daily Market Update

Gold Investments Market Update

Gold was up $4.60 to $970.40 per ounce in trading in New York on Friday and silver was up another 9 cents to $19.73 per ounce (more on silver below). In Asian and early European trading, gold rose to a new respective record and 27 year high levels at $984.80 and silver reached $20.17. The monthly close at $970.40 is a new record high monthly close and bullish from a technical perspective. As is silver’s monthly close at 19.73.

Gold also strengthened in British pounds and euro to new record highs. The London AM Fix at 1030 GMT this morning was at $978.25, £492.70 and €644.94.

Gold remains strong (in all major currencies) on the same fundamentals that have driven this market in recent months – a weaker dollar, rising oil and food prices and inflation, falling property prices, slowing economic growth and no end to the continuing (and likely deepening) credit crisis. Safe haven buying has driven the midas metal to new record highs and the gold bug’s much anticipated $1,000 per ounce is likely in the coming days (see Bloomberg article below).

Record gold and silver prices are not due to European, Japanese or other non-U.S. speculators or investors buying due to the weakening dollar. Some in the media have reported that gold rose as gold “is priced in dollars” and as the dollar has fallen gold and silver are now cheaper in non-U.S. currencies. This is incorrect. Firstly gold is not ‘priced’ in dollars. Gold is most commonly quoted in U.S. dollars in the financial press but buyers in the EU pay in euro and buyers in Japan pay in yen unless they choose to buy gold futures on the NYMEX or CBOT. These buyers are sophisticated and know the price of gold in dollars and their own currencies and know that gold is going up in all currencies as per the charts below and it is not purely a function of dollar weakness.

Many realise that gold is less of a commodity and more a currency. Gold is money and a universal finite currency that cannot be debased by the monetary policy of central bankers.

Gold is not ‘cheaper’ to the non U.S. international buyers. Gold is going up in all currencies and these buyers (some speculators, many long term value investors) are buying as they anticipate gold continuing to rally in their own indigenous currencies. Also their indigenous stock markets are under serious pressure (FTSE down 10% YTD; Nikkei down 15% YTD) and safe haven buying and diversification is the fundamental driver of these markets.

Gold remains well below its inflation adjusted high of some $2,300 per ounce and once $1,000 is broken (as seems likely in the coming days) then the inflation adjusted high will be considered the next long term price target. Be aware that there will be price corrections along the way.


Gold Investments in a Bloomberg Survey
Gold may top $1,000 an ounce for the first time ever as a slumping dollar and higher raw-materials costs boost demand for the precious metal as an inflation hedge. Seventeen of 22 traders, investors and analysts surveyed from Melbourne to Chicago on Feb. 28 and Feb. 29 advised buying gold, which rose 2.9 percent to $975 an ounce last week in New York. Two said to sell, and three were neutral. On Feb. 29, gold climbed to $978.50, the highest ever, as crude oil surged to a record $103.05 a barrel and the dollar fell to the lowest ever against the euro. The metal rallied 31 percent last year as consumer prices rose at the fastest pace since 1990 and the dollar lost 9.5 percent against the euro.

A majority of analysts surveyed Feb. 21 and Feb. 22 anticipated last week’s gain. The survey has forecast prices accurately in 125 of 200 weeks, or 63 percent of the time.
This week’s survey results: Bullish: 17 Bearish: 2 Neutral: 3

Support and Resistance
Strong support in gold is now seen at $890 to $900. Short term support is now at $950 and $965 and below that at $930 and $915. The $1000 price level remains a short term price target and $1,200 is now a realistic possibility in the coming weeks.

Silver is trading at $20.12/20.16 at 1200GMT.
At the start of the year we predicted that silver would reach $20: “We remain bullish on silver and continue to believe it will outperform gold due to the extremely strong supply/demand fundamentals. We believe silver will surpass $20 per ounce in 2008 and could reach as high as $25 per ounce.”

The likelihood of a commercial signal failure where the huge and unprecedented concentrated short positions in silver are being forced to cover their shorts and buy back silver in significant volumes, has increased. The commercial shorts could be forced to panic cover en masse creating a massive surge in the silver (and gold) price.

Peter Brimelow in Marketwatch reports that “Silver leaped a stunning 9.7% in the past week, with Comex May silver closing up $1.767 at $19.915. The Privateer was a little dismissive: “For many of those who are dipping their toes into the precious metals markets, gold is simply seen as being too expensive. That is why silver (‘the poor man’s gold’) has outperformed gold so far this year.”

But other observers were more excited. At Le Metropole Café, Bill Murphy who has followed gold closely for years, was motivated to put out a special Sunday alert: “To say that silver has been trading differently the past couple of months is an understatement. … As a veteran commodities trader, I could see, on a daily basis, somebody quietly accumulating silver on price dips … never pushing the envelope, but buying silver at times when it normally would get trashed.”

At Jim Sinclair’s MineSet, Dan Norcini plunged into the technical entrails of silver futures trading — the “commitments of traders” supplied by the Commodity Futures Trading Commission — and pulled out an unusual augury: “The funds have not been reducing their net long position. … The funds continue to buy. Guess who is doing the selling — the small specs! Apparently, some of the public is trying to pick a top in the silver market. They have built up the largest outright short position in two years. Talk about a bullish signal. The most undercapitalized traders on the planet are adding new silver shorts as the market breaks into a 28-year high.”

Norcini adds: “Remember, it is a new calendar month on Monday and that often means new allocations of fund money to the markets. If that occurs, the silver shorts are in serious, serious trouble as the longs will show them not one ounce of mercy. Blood in the water draws sharks and the silver shorts are not only bleeding, they are hemorrhaging massively.”

Of all the precious metals and commodities we remain the most bullish on silver, next gold and then platinum and palladium.

Platinum is trading at $2166/2176 (1200GMT).
Palladium surged and is trading at $575/581 per ounce (1200GMT).

Mark O'Byrne
Executive Director


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