Gold

Gold finished trading in New York on Friday at $857.50, down $11.90 and silver was down 92 cents to $15.29. Gold has risen in Asian and early European trading and is trading at $860.10/860.60 per ounce (1230 GMT).

The sharp dollar rally has continued (with the euro falling as low as 1.4927) and this is contributing to material weakness in the gold market. The dollar had its biggest one day rise against the euro since January 2001 and after today’s further gains the dollar looks overbought in the short and medium term and this should result in gold being supported at the $850 level.

Oil is up some 1% today as the conflict in Georgia has created concerns regarding a disruption of supplies from the wider region.

$850/oz is the previous record high and was significant resistance for gold at the end of 2007. Technical analysis suggests that gold should remain above previous resistance and this level should remain fundamental support.

Physical buying is likely to reemerge as we are now at 14 week lows, well below the 200 day moving average and more price sensitive buyers (particularly in India) should again provide a floor to prices.
They have not and we appear to be experiencing another brief hiatus from financial and economic reality. Central bank buying and political jawboning has led to another dollar bear market rally and a massive bout of short covering. Stagflation remains a concern internationally and the ECB has again warned regarding inflation today. Central bank council member Klaus Liebscher said policy makers remain focused on the “worrying” level of inflation.

With negative real interest rates the dollar is likely to come under further pressure in the coming weeks, especially against the Swiss franc, some Asian currencies and most especially gold.

This Week’s Data and Influences

Economic events this week pose risks to the dollar’s most recent bounce – these include the release of international and TIC’s reports for June, as well as the CPI report for July. There is also a host of economic activity reports are all expected to highlight that the economy still faces considerable downside risks. At the same time, however, the release of preliminary Q2 GDP data for the eurozone could result in the euro remaining weak.

Gold and Silver

Gold is trading at $860.10/860.60 per ounce (1230 GMT).
Silver is trading at $15.46/15.50 per ounce (1230 GMT).

PGMs

Platinum is trading at $1545/1552 per ounce (1230 GMT).
Palladium is trading at $333/338 per ounce (1230 GMT).