GoldCore Update: Gold’s Long Term Inverse Correlation to Equities Asserting Itself

Gold
Gold had a strong run in US trading yesterday closing above the psychological $1,100/oz at $1,103.60/oz. It  moved sideways in Asian trading so far this morning prior to rising to $1,114/oz at the London AM Fix. Gold is currently trading at $1,114.50/oz and in euro and GBP terms, gold is trading at €794/oz and £694/oz respectively.

Gold and silver rose 2% and 2.5% respectively yesterday as the dollar weakened on concerns of the massive record post World War II budget deficits and long term inflation concerns.

And the US is not alone in facing significant fiscal challenges, eurozone states have taken on record debt levels (eurozone governments have borrowed a record €110bn from the markets so far this year) which is forcing up debt servicing costs for countries with poor public finances who are now paying a the price of surging debt levels. This bodes well for the euro price of gold which is again challenging the €800/oz mark.

Gold’s medium and long term inverse correlation with major equity indices (such as the FTSE and S&P500) is again being seen with gold now up 1.6% year to date (in USD terms and up 4.44% in euro terms and in GBP terms 3.15%) and equity markets down (see performance table).

Despite yesterday’s strong bounce in gold it is too soon yet to decide whether the recent sharp selloff is coming to a close. Gold will need to close higher on the week and for the month of February before the animal spirits of a few weeks ago return to the market.

Silver
Silver had a quiet morning in Asia range trading from $16.54/oz to $16.68/oz. Silver is currently trading at $16.61/oz, €11.92/oz and £10.42/oz.

Platinum Group Metals
Platinum is trading at $1,545/oz and palladium is currently trading at $430/oz. Rhodium is at $2,475/oz.

News
– Asian stock markets were mixed with the Nikkei up 1.6% but markets in Shanghai and Singapore down.
– Australia’s central bank surprised markets today by keeping interest rates on hold. The Reserve Bank of Australia kept the overnight cash rate target at 3.75% after three increases, it said in Sydney today.
– Southern European debt markets have recovered somewhat from their recent sharp sell offs. The yield spread between 10-year Greek government bonds and equivalent German bunds continued to narrow Tuesday, ahead of Wednesday’s European Commission decision on the Greek plan to reduce its massive government budget deficit.  The spread on 10-year Greek government bonds over bunds dipped below 330 basis points, down from the 400-basis-point peaks seen at the end of last week.
– Oil prices rose again this morning, building on strong gains seen yesterday in the wake of robust US manufacturing activity and fresh unrest in Nigeria’s key oil-producing region. New York’s main futures contract, light sweet crude for delivery in March, was up 27 cents at $74.70 a barrel, while Brent North Sea crude for delivery in March gained 29 cents to $73.40.

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Mark OByrne

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