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Gold Volatile Monday Trading

Commodities / Gold & Silver Apr 21, 2008 - 09:39 AM GMT

By: Mark_OByrne

Commodities In volatile and choppy indeterminate trade in Asia and Europe gold has traded in tight range between $915 and $923. The London AM Gold Fix at 1030 GMT this morning was at $915.75, £461.64 and €577.40 (from $942.25, £472.19 and €592.31 Friday).

After a very strong week gold was taken down significantly on Friday, giving up the gains seen Monday to Thursday. Gold was down 1.28% last week while silver was up 0.68%. The lower weekly close in gold was bearish from a technical point of view but the fact that silver and the gold mining indexes were stronger and had higher weekly closes (HUI up 3.75% and XAU up 2.9%) suggests that gold's weakness may again prove temporary.

With oil and the dollar remaining near record highs and record lows respectively and with physical demand internationally and particularly in Asia and China remaining strong (see below), gold is unlikely to fall below $900 per ounce. Indeed resistance seen at last week's highs of $950 will likely again be challenged sooner than most analysts anticipate.

Review of Last Week

Risk appetite increased in the mistaken notion that the worst of the global financial and economic crisis has passed. Stock markets and the dollar were up strongly on Friday resulting in strongly weekly gains in stock markets (Dow +4.25%; Nasdaq +4.92% and S&P +4.31) and a marginal weekly advance in the dollar ( US Dollar Index +0.28%). The biggest movements came in the energy (Oil +5.95%; g + May Natural Gas surged 7.5% (up 42% y-t-d) and May Gasoline jumped 4.2% to a new record (up 21% y-t-d) ) and bond markets (10 Year US Bond + 7.84% to 3.743%) and the Long-bond yields gained 20 bps to 4.50%.

Perhaps the bond vigilantes have awoken from their long slumber and realizing that with food and energy prices surging inflation is a real threat to low yielding bonds. Any retreat from the bond market by the bond market vigilantes and by the U.S. huge creditors could see a return to normality in the bond markets and higher interest rates. It is hard to see how an already struggling US housing market and economy could cope with higher rates but unfortunately they seem inevitable.
21-Apr-08 Last 1 Month YTD 1 Year 5 Year
Gold $     
S&P 500      
© 2008

Data this Week

Key U.S. data for release this week focus on the housing market, with existing and new home sales for March scheduled. Other US data of note include durable goods for March and the final Michigan consumer sentiment report for April and these will set the tone for markets.

Market Intervention to Support Dollar
While the dollar index was up marginally for the week, the dollar had a mixed performance versus various currencies. The dollar index rallied 0.3%, ending the week at 72.01.  For the week on the upside, the Canadian dollar increased 1.5%, the South African rand 1.2%, the Brazilian real 1.1%, the British pound 1.0%, and the Australian dollar 0.8%. On the downside, the Japanese yen declined 2.5%, the Swiss franc 1.9%, the South Korean won 1.7%, and the Norwegian krone 0.5%.

Friday's sharp movements in the currency and commodity markets were unusual and there may have been official intervention in order to prop up the dollar. There was no ostensible reason for the sharp increase in the value of the dollar versus the euro and gold's sharp sell off on Friday and it would be naïve to completely discount the possibility of official intervention in these markets to support the dollar. The G7 in their recent communiqué hinted at intervention, as has Treasury Secretary Henry Paulson.

Paulson, ex CEO of Goldman Sachs, recently  said that the U.S. administration has a "strong dollar" policy and declined to speculate on potential intervention in support of the falling greenback.  Asked about possible U.S. intervention in the foreign-exchange markets, where the dollar has depreciated rapidly amid a credit squeeze that is roiling financial markets, Paulson said: "I'm not going to speculate on hypotheticals and intervention."

Paulson's comments came after he attended a meeting with President George W. Bush and the president's Working Group on Financial Markets (also known as the Plunge Protection Team (PPT) ) at the White House. The meeting of the working group also includes the chairmen of the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. The President's Working Group on Financial Markets in the US was formed in 1988 to enhance “the integrity, efficiency, orderliness, and competitiveness” of US financial markets and to maintain “investor confidence”.

Chinese Gold Demand Increasing Significantly
Figures from the World Gold Council showed sales of gold jewellery in China hit a record high of 302.2 tonnes in 2007, up 34 percent on the previous year. China has now overtaken the United States to become the world's second largest buyer of gold jewellery after India.

But behind the remarkable growth lies a deep Chinese traditional appreciation of the precious metal as a hedge against social and economic risks.

"I'm more confident in gold -- we've been buying it for so many years in the past anyway," said 78-year-old Wu Peifen, who was selecting a wedding gift for her grandson at Beijing's Wangfujing Department Store.

High inflation and a 41-percent slump in the domestic stock market this year have added further momentum to China's drive to buy gold.

Importantly, Chinese consumers are not deterred by rising prices, experts said. Rather, they increasingly view gold as not only a means to protect wealth but also as an efficient part of their investment portfolio. "In fact, higher gold prices helped to stimulate investment purchases of the metal... as consumers were attracted by the strong returns generated by the metal," the World Gold Council said in a recent report about the China market.

It said investment demand for gold at the retail level amounted to 23.9 tonnes in 2007, a rise of 60 percent compared with 2006.

Support and Resistance
Support for gold is at $910 and $905 and strong support is at $880. Resistance is now last week's high at $950.


Silver is trading at $17.85/17.90 at 1215 GMT.


Platinum is trading at $2060/2070 (1215 GMT).
Palladium is trading at $455/460per ounce (1215  GMT). 

By Mark O'Byrne, Executive Director

Gold Investments
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Dublin 2
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Gold Investments
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Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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