GoldCore Update: Obama’s Health Care Bill to Contribute to Surging US Budget Deficits

Gold
Gold sold off aggressively on Friday, closing at $1107.40/oz in New York, showing a loss of 1.8% on the day. However, it was still up 0.54% on the week which is important from a technical perspective. Gold traded nearly flat this morning in Asian trading and is currently trading at $1,104.70/oz and €816.48/oz & £736.37/oz in euro and GBP terms respectively.

Friday’s fall was likely due to the dollar strength and increasing concerns about whether the EU can resolve the Greek economic crisis. Increasing tensions between eurozone partners about how to resolve the crisis is making markets nervous and leading to a selloff in the euro.  Gold’s higher weekly close will embolden the technical and momentum traders.

Gold was volatile last week and the selling on Friday was very aggressive. Gold fell very sharply by some $15 ($1,122/oz to $1,107/oz) in just a few minutes leading some to surmise that a large fund liquidation may have been responsible. The dollar has been high all morning. Some such as GATA will claim that the selling was unusual and was designed to manipulate the gold market lower. The CFTC meeting on position limits takes place this Thursday March 25, where invited guests will get the chance to make a five minute presentation before receiving questions from the panel.

Fundamentally, central bank and investor safe haven demand looks set to continue while sovereign debt issues remain to the fore and this should see gold continue to perform well for the foreseeable future.

Obama’s health care reform will increase the size of the US budget deficit and increase concern about the value of US bonds and the dollar. The International Monetary Fund on Sunday urged countries, particularly those with advanced economies, to pare their fiscal deficits and debt to prudent levels by carrying out pension and health entitlement reforms (see below). IMF First Deputy Managing Director John Lipsky said in remarks delivered in Beijing that high public debt and fiscal deficits have already raised the risk premium for several countries, and could lead to higher interest rates and slower economic growth in the medium term.

Support is at $1,100/oz and a close below that level could see gold under liquidation pressure and see falls back to support at $1,090/oz and potentially to strong support at $1,060/oz.

Silver
Silver closed at $17.00/oz on Friday, remaining unchanged on the week. Silver is trading at $16.86/oz, €12.46/oz and £11.24/oz at the moment.

Platinum Group Metals
Platinum is trading at $1,581/oz, palladium at $458/oz and rhodium at $2425/oz.

News
China’s commerce minister warned the US yesterday against imposing trade sanctions over Beijing’s currency controls. He said his country was likely to report a trade deficit in March. Washington and other trading partners are pressing China to ease controls that have kept its yuan currency steady against the dollar for 18 months. Some US lawmakers have demanded to have China declared a currency manipulator in a US Treasury Department report due out next month, which could precede possible trade sanctions.

The International Monetary Fund warned the world’s wealthiest nations Sunday to watch their surging levels of government debt, saying it could drag down the growth needed to ensure continued economic recovery. The economic crisis is leaving "deep scars in fiscal balances, particularly in the advanced economies," John Lipsky, First Deputy Managing Director, told the China Development Forum in Beijing. He said that countries that have been going into debt to stimulate their economies should now prepare for belt-tightening steps next year.

Crude oil futures fell some 0.7% last week and fell again today during Asian and early European trading hours despite a weakening US dollar.

Indian stock markets fell Monday, reacting to fears the Reserve Bank of India may raise interest rates a few more times in coming months after Friday’s surprise hike amid robust economic indicators and soaring inflation.

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Mark OByrne

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