Gold Lower on Basel III and Chinese Data Despite Chinese Diversification Talk

Gold

Gold and the dollar have fallen as risk appetite has returned due to the Basel III regulations and the positive economic data out of China. The euro in particular has rallied sharply in what would appear to be a relief rally after the recent weakness. Gold and silver fell marginally last week which has clouded the technical picture and could lead to momentum driven weakness this week. However, the medium and long term fundamentals remain sound and should reassert themselves if there is a period of correction and consolidation.

Gold is currently trading at $1,244.10/oz, €971.95/oz, £806.50/oz.

Gold in USD – 5 Day (Tick). Click on image to view full size

Dollar weakness may have been exacerbated by further talk of Chinese diversification of their massive currency reserves. The Chinese are "on their way to diversify their assets," Zhu Min, a former deputy governor of the People’s Bank of China and now special adviser to the managing director of the International Monetary Fund, said in a Bloomberg Television interview. China has been buying Asian government debt and bought more Japanese bonds than it sold for a seventh straight month in July, heading for a record annual increase, Japan’s government said last week. Chinese officials have sent mixed messages regarding diversification into gold but are likely to be gradually allocating foreign reserves to gold as they have been in recent years. The Chinese government’s gold reserves have risen sharply in recent years from very low levels. Thus, there is scope for further increases, as they account for just 1.7% of foreign exchange reserves.

Silver

Silver fell 3 cents or 0.2% last week and could be subject the technical and momentum driven selling this week. Silver is slightly higher this morning and continues to trade positively. Like gold the fundamentals remain very sound and any sell off is likely to be greeted by buyers buying on the dip.

The gold to silver ratio is trending lower and given industrial demand for silver today and in recent years, has made the silver supply and demand equation even more favourable than non-industrial and non-consumed gold. We will likely continue to see the gold to silver ratio fall with 50 being a likely price target in the coming months.

Gold to Silver Ratio – 10 Years (Weekly). Click on image to view full size

Silver is currently trading at $19.88/oz, €15.53/oz and £12.89/oz.

Platinum Group Metals

Platinum is trading at $1,544.00/oz, palladium is at $521/oz and rhodium is at $2,050/oz.

Mark OByrne

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