Gold Remains Near Record Sterling Price on UK Hung Parliament and Devaluation Concerns

Gold
Yesterday, gold rose to $1,161/oz early in New York, it then dropped to $1,152/oz before recovering to close with a gain of 0.59%. It has dropped from $1,158/oz to $1,152/oz in Asian and European trading today. Gold is currently trading at $1,152/oz and in euro and GBP terms, gold is trading at €850/oz and £748.50/oz respectively. Gold remains near record nominal highs in sterling terms and sterling is down by more than 10% versus gold year to date (see chart). Gold seems to be consolidating near the recent record high of £757.81 per ounce set on March 2nd, 2010. Prospects of a hung parliament in the UK and increasing talk of a devaluation of the pound could see further gains in the price of gold in sterling terms in the coming weeks.

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Gold in euro terms has remained robust near €850/oz and has not fallen as much as in dollar terms due to concerns about the risk of eurozone countries bankruptcy and the consequent impact on the euro. Gold is being supported by continuing concerns about the sustainability of the economic recovery and about sovereign debt risk. Support for gold is currently seen at $1,120/oz and resistance at $1,1170/oz. While gold may be overbought in the short term and may correct and consolidate, the medium and long term fundamentals remain as sound as ever as seen in the GFMS report showing how investment demand had surpassed jewellery demand in 2009 – the first time since 1980 (see News).

Silver
Silver has dropped from $18.45/oz to $18.30/oz this morning in Asia. Silver is currently trading at $18.31/oz, €13.51/oz and £11.84/oz.

Platinum Group Metals
Platinum is trading at $1,725/oz and palladium is currently trading at $546/oz. Rhodium is at $2,950/oz. Palladium has not fallen by as much as one would expect given the very large move which suggests that this may be the pause that refreshes.

News
The price of gold could hit $US1300 an ounce this year, according to GFMS, the precious metals analyst. The consultancy predicted that gold will rise in the second half of this year as investors seek a safe haven from inflation.

Investment demand for physical gold surpassed jewellery buying for the first time since gold hit its inflation-adjusted high in 1980. Investment demand almost doubled over the course of 2009, while rising prices and the global economic downturn caused demand for gold jewellery to slide 20pc, according to metals consultancy GFMS. GFMS said that the amount of gold bought for investment quadrupled to 1429 tonnes last year. This was primarily invested through exchange-traded funds, which allow consumers to buy shares in physical gold without holding the metal themselves. Demand for traditional forms of investment gold, such as coins and bars, was also strong. Total global demand for gold increased by 8.3 per cent to 4287 tonnes last year. Central banks were also net buyers of gold in 2009 for the first time since 1987.

There are growing concerns that China’s economy is at serious risk of overheating deepened on Thursday after official data for the first three months of this year showed the economy grew by 11.9pc year-on-year. Analysts said the faster-than-expected growth figures strengthened the case for continued policy tightening in China which is facing inflationary pressure and a potentially dangerous boom in residential property prices.

Oil was little changed near $86 a barrel as the dollar gained against the euro. Oil rose 2.1 percent yesterday after the Energy Department said crude stockpiles in the US, the world’s biggest energy consumer, dropped 2.2 million barrels last week, the first decline in 11 weeks. China is the second-largest oil user and their booming economy and robust demand for oil is leading inflationary pressures.

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Mark OByrne

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