GoldCore Update: Dollar Rally Confronted by Massive US Budget Deficit

Gold
Gold fell slightly on Friday to result in slight fall for the week and a slight fall for the month of January – gold was down 1.1% in January. Gold started the first week of February at $1,081/oz and rose to $1,084/oz in Asian trading. Gold is currently trading at $1,081.60/oz and in euro and GBP terms, gold is trading at €780/oz and £681/oz respectively.

The trend remains firmly down and advantage rests with the momentum traders who are making the trend their friend. Support is at $1,070/oz and a close below that level could see stop losses triggered and sharp liquidation and gold testing strong support at $1,030/oz. The question is whether the strong physical demand, particularly emanating from Asia (as seen in premiums and dealer reports) is robust enough to arrest the recent decline.

President Obama sent the U.S. Congress a $3.83 trillion budget on Monday. President Obama’s projection for a massive US budget deficit (a congressional source told Reuters the document will forecast a $1.6 trillion budget deficit for the current fiscal year), a new post-World War II high will test the dollar and should support gold. U.S. Treasury bonds slipped in Asia on Monday but the falls were limited. Sovereign debt risk remains highly elevated, especially regarding Greece, and traders will be keeping an eye on government bonds.

The market awaits key economic data and events this week that could provide market direction.

Silver
Silver has had a strong morning in Asian trading moving from $16.08/oz to $16.32/oz. Silver is currently trading at $16.28/oz, €11.71/oz and £10.23/oz.

Platinum Group Metals
Platinum is trading at $1,518/oz and palladium is currently trading at $419/oz. While rhodium is at $2,450/oz.

News
– UK manufacturers increased activity to a 15-year high last month – Manufacturing PMI was 56.7 vs an estimated 54.1.

– A slowdown in the pace of UK mortgage lending and the first fall in mortgage approvals in more than a year injected some uncertainty about the sustainability of any upturn. Manufacturing in the euro zone hit a two-year high in January, with Germany and France leading the way for post-recession Europe as Spain and Greece fell further behind, a survey shows today.  The euro zone’s purchasing managers’ index (PMI) for the manufacturing sector, published by data and research group Markit, rose to 52.4 points in January from 51.6 points in December.

– Oil prices climbed this morning, reversing earlier losses caused by worries over weak demand. New York’s main futures contract, light sweet crude for delivery in March, gained 30 cents to $73.19 a barrel after dipping by a similar amount during Asian trading hours.

– Financial Times Deutschland reports that a disk said to contain the names of some 1,300 Germans evading tax by parking funds in Switzerland comes from British bank HSBC. The paper said the secret informant was 37-year-old Herve Falciani, an IT specialist from HSBC private bank in Geneva, who last year handed over similar data to the French authorities.

Mark OByrne

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