Gold was down $4.80 to $902.80 per ounce in trading in New York on Friday and silver was down 12 cents to $17.10 per ounce. Gold has traded sideways to slightly up in Asia and early trading in Europe.
Gold rose in British pounds and fell in euro. The London AM Fix at 1030 GMT this morning was at $905 (down from $909.75). Gold fixed at £464.03 (up from £463.97) and €618.51 (down from €619.76). With U.S. markets closed, gold would be expected to have a quite day but recent volatility may continue especially with the deteriorating situation in South Africa seriously affecting the supply of gold and particularly platinum. Despite Bernanke’s poor outlook for the U.S. economy and the poor economic data (Michigan consumer sentiment fell to its lowest since 1992) last week, the dollar is up this morning. However, the dollar’s recent strength is likely to be short lived and the dollar is likely to weaken materially in the medium to long term in the coming weeks and months.
Stagflation is clearly on the horizon if not already here with prices of all commodities surging. Oil is back above $95 a barrel and wheat prices are up 3 fold from a year ago. The FT reports this morning that prices for top-quality spring wheat have jumped by 90 per cent in the past month and a half, boosted by a scramble by corporate consumers to secure scarce grain and speculative buying by investors. A surge on Friday in prices for wheat used in bread to an all-time high of $19.88 a bushel – the highest yet paid for any wheat contract and a three-fold increase from a year ago – prompted the U.S. baking industry to call for wheat exports to be curtailed. “It is currently at a very low one-month level, which is extremely concerning,” she said. In addition, the FT reports that aluminium prices have also soared. “Aluminium prices on Thursday jumped to a seven-month high after South Africa’s state-owned utility Eskom said it was considering buying back “significant” amounts of power from its industrial customers, which include three aluminium smelters. The fear of supply disruptions in South Africa came as the market is already suffering a significant loss of production in China, also due to power shortages.” The rise in prices of commodities will take a few weeks to feed into the supply chain, affect the already embattled consumer and be reflected in inflation statistics. Economic growth is slowing particularly in the U.S. and internationally and inflation is due to increase in the coming weeks and months on the back of the continuing surge in commodity prices. Thus, gold’s favourite climate stagflation seems clearly on the cards unless there is a massive deflationary event and a significant stock market crash and global Depression which seems unlikely (especially with continuing economic strength in Brazil, Russia, the Middle East, India, China and other emerging markets). Gold has consolidated nicely in the $850 to $935 range. Strong support is now seen at $860 and even $900 looks well supported. Any close on a daily basis above $935 should see us challenge $1,000 per ounce in a matter of weeks. FX Despite the negative economic news out of the U.S. on Friday the euro still remains range bound against the dollar. There has been a extended period of consolidation of late with those looking for further dollar weakness currently evenly balanced with those that foresee a period of dollar strength on the horizon. The sterling market woke up to the nationalisation plans for Northern Rock and they didn’t like what they saw and immediately sold the British pound across the board. This could be the trigger for the next leg lower in sterling against the euro with the 0.7700 target still firm within our sights. Commodity currencies again trending higher with the Australian and New Zealand dollars setting multi month highs against the greenback. With all commodity groups firming at present this trend looks set to continue for now. Support and Resistance Support is at $886 which was the low on Tuesday February 5th. Next support is at the monthly low on January 21st of $861. Strong support is at $850 to $860. There appears to be strong physical demand internationally for gold in the $890s and thus gold is unlikely to fall far below $890 except for a short period of time. Silver Silver is trading at $17.03/07 at 1200GMT. PGMs Platinum continues to reach new record highs above $2,000 and is trading at $2095/2105 (1200GMT). Palladium has remained firmer and is trading at $452/458 an ounce (1200GMT). Another platinum group metal (PGM) rhodium shows what can happen in a tight marketplace where demand clearly exceeds supply. Rhodium traded at the same price as gold only 5 years ago -below $300 or ounce. It has surged 3,000% in the last 5 years to over $9000 per ounce this morning. Incidentally 3,000% is the same appreciation experienced by gold in the stagflationary 1970s ($35 in 1971 to $850 in 1980).