Gold
Gold surged to $942.80 in New York yesterday and was up $16.30 and silver closed at $18.20, up 78 cents.
Gold has succumbed to profit taking with the dollar flat and oil prices down marginally ($141.30 per barrel). However, geopolitical risk remains ever present and this should result in gold remaining well bid at these levels.
While the ISM data yesterday looked benign and was greeted by an increase in risk appetite, a deeper look at the numbers was very worrying in that it showed a leap in the Index of Prices paid number. It came in at 91.5, jumping from 87.0 in May. This is the highest level since 1979 and shows that inflation is real and deepening.
Geopolitical Risk From U.S. and Israel Militarily Confronting Iran is Real
Geopolitical risk and continuing tensions in the Middle East and particularly between the U.S., Israel and Iran are an important factor in recent price increases.
The U.S. Defense Department thinks it is increasingly likely that Israel will attack Iran’s nuclear facilities by the end of this year. An ABC News report quoted senior Pentagon sources yesterday saying that Washington was concerned that Iran would strike both the United States and Israel in retaliation. One official said such an Israeli attack would have far reaching security and economic consequences, and the U.S. would be accused of cooperating with the Israeli strike. While the U.S. State Department has denied the reports, the ABC News report was just the most recent in a series of media revelations on the possibility that Israel would use force to stop the Iranian nuclear program.
Already the OPEC President has mooted the possibility of oil reaching over $170 per barrel this summer on supply demand issues alone. Were there to be a military confrontation between the U.S. and or Israel and Iran in the coming weeks prior to President Bush leaving office, some informed commentators have mooted the possibility of oil surging to over $200 or even $300 per barrel. Iran has threatened to close the Straits of Hormuz if attacked, cutting off a quarter of the world’s oil supply.
Peru’s nationwide mining strike has entered its second day as miners demand for a fair share of surging profits. Peru is the world’s largest silver producer, and this is likely to result in silver remaining well bid and outperforming in the coming trading sessions.
Today’s Data and Influences
Activity has been subdued in Asian and early European trade as many investors appear to be waiting on the sidelines ahead of tomorrow’s ECB policy meeting and the ever-important monthly U.S. non-farm payrolls.
Attention today will be on the ADP employment report, which may give an indication as to Thursday’s official payrolls data. Markets will monitor comments from US Treasury Secretary Paulson who is due to deliver a key note address on the economy and markets and more ‘jawboning’ of the dollar is to be expected.
Silver
Silver is trading at $17.90/17.93 per ounce (1200 GMT).
PGMs
Platinum is trading at $2057/2063 per ounce (1200 GMT).
Palladium is trading at $460/464 per ounce (1200 GMT).
