Gold slipped some 1% to $1,085.40/oz in US trading but then recovered to range trade from $1,085/oz to $1,091/oz in Asian trading. Gold is currently trading at $1,089.00/oz and in euro and GBP terms, gold is trading at €779/oz and £672/oz respectively.
Obama’s Populist Rhetoric Soothes Markets but Uncertainty Growing
Risk appetite has returned after Obama’s populist State of the Union address which has seen equity markets and gold rise tentatively in unison. Gold is up some 1% since Obama’s speech but this may be due to gold bouncing from a somewhat oversold position rather than Obama’s soothing words about the economy. The dollar also strengthened on Obama’s speech and these gains have been maintained and appear to be capping gold below the $1,100/oz level.
The FOMC left rates unchanged but their statement was interpreted as being slightly more upbeat than before, despite the emergence of Kansas City Fed President Thomas Hoenig as a dissenting voice, concerned about developing inflation. Another note of caution ignored by many was that a housing improvement was no longer seen by the FOMC. Concerns about further declines in property markets, particularly the vulnerable commercial property market, should see continuing safe haven demand for gold.
Record low interest rates set to remain near 0% for the foreseeable future remain bullish for gold. There is still no opportunity cost in owning the non yielding yellow metal versus the dollar and other currencies that have interest rates remaining near 0%.
A risk that may not have been fully factored into markets is growing uncertainty regarding the position of Treasury Secretary Geithner who yesterday was subject to a bipartisan attack over the secretive AIG deal. The populist mood sweeping America clearly affecting politicians (Geithner was accused of incompetence and negligence) is leading to increasing uncertainty – regulatory, political, economic and monetary: gold benefits from such uncertainty.
Silver dipped as low as $16.47/oz overnight but we have seen support and recovery this morning. Silver is currently trading at $16.69/oz, €11.88/oz and £10.26/oz.
Platinum Group Metals
Platinum is trading at $1,520/oz and palladium is currently trading at $419/oz. Rhodium is at $2,450/oz.
The Reuters Precious Metals Poll found that leading analysts of the precious metals markets remain bullish on the precious metals. Precious metals are expected to make further gains this year, with platinum group metals (PGMs) and silver forecast to outperform gold on hope that an upturn in the economic cycle will boost demand for industrial usage. 60 leading precious metals analysts, traders and fund managers (including GoldCore) took part in the survey on the outlook for precious metals in 2010 and 2011, collected in January.
Gold could increasingly be investors’ top hedge against mounting inflationary pressures in Asia, a regional survey showed on Wednesday. With economic growth in Asia expected to lead the world again in 2010, 45 percent of investors in the region’s markets outside of Japan picked the precious metal as their most favoured tool to protect their returns from inflation, while 42 percent chose equities, according to a quarterly survey from ING.
At the World Economic Forum in Davos, Newmont Mining Corp (NEM.N) CEO Richard O’Brien forecast that the price would in the longer term rise to $1,250 to $1,500 an ounce. O’Brien said that the gold price could range between $1,025 and $1,250 an ounce this year.
China looks set to overtake India as the world’s largest gold consumer while also being the world’s largest gold producer. China’s gold output jumped 11.34 percent to a record of 313.98 tonnes in 2009, securing the country’s position as the world’s largest producer of the yellow metal. China has dramatically opened bullion markets to active trade in the past decade, including allowing gold to be traded freely on the Shanghai Gold Exchange. Citizens owning gold was outlawed in 1949 when the communists took power and was only allowed again in 2003.
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