Commodity Markets Update - Gold Takes a Breather From Recent Price Surge

By: Gold_Investments

Gold
Spot gold was trading at $706.00/706.50 an ounce as of 1215 GMT after yesterday's 1.5% price increase.

Gold has been taking a well earned breather after its recent price surge. However, given that the dollar remains under serious pressure and oil remains near all time record highs and neither are expected to reverse these trends in any significant way, gold is well supported. With the record oil price, surging wheat price and an increasing realisation that there is a long term structural trend toward higher soft commodity and food prices while economic growth is stagnating, it is obvious that a new form of stagflation is rearing it's ugly head.

The stagflation of the 1970's led to gold rising from $35 per ounce to $850 per ounce in 1980 and we expect gold will again outperform the majority of asset classes in the coming years.

Stagflation is not kind to paper currencies and paper assets. As we pointed out yesterday, gold has surged in price not just in terms of the USD but is moving up in price of all paper currencies and has been very strong in EUR, GBP, CHF and JPY terms as well. Or to put it more correctly, paper currencies are losing their value in relation to gold.

Gold easily surpassed the strong resistance seen at the psychological €500 EUR mark. Gold in EUR terms is now trading at €509.10 and in GBP at £349.05, both near 16 month highs.

Forex and Gold
The EUR climbed above the $1.39 level for the first time yesterday, driven higher by growing concerns about the health of the U.S. economy and expectations that we will get a series of interest rate cuts from the Fed before year end, starting with a 0.50% move at next week's FOMC policy meeting. Meanwhile, the ECB continues to hint that it could increase interest rates again in the months ahead.

Trading was modest overnight and the USD is modestly higher on evidence of some profit taking. However, as markets refocus on interest differentials, the USD looks set to remain under pressure, leaving the way open for a test of the $1.40 level. Following last Friday's poor non-farm payrolls report, markets will be keeping a close eye on this afternoon's weekly jobless claims. Any further indications of weakness in the labour market will weigh heavily on the USD.

GBP has lost some of its shine as a high yielder amid growing speculation that UK interest rates have peaked at 5.75%. It fell to a four month low versus the EUR, while also slipping against the USD and JPY after comments from Mervyn King were seen as supporting the case for unchanged policy and last night's news that the RICS house price survey fell sharply in August may lead to a fundamental reassessment of the GBP's medium to long term outlook. The RICS UK housing market survey has been a sound indicator in the past and could mean that the UK housing market is soon to follow the U.S. housing market and economy into a slowdown.

Silver
Spot silver is trading at $12.49/12.51 an ounce (1215 GMT).
Silver has underperformed gold in recent weeks and remains very undervalued. The COMEX Commitment of Traders (COT) report is very bullish for silver and silver should soon play catch up with both gold and the wider commodity complex as it's fundamentals are probably stronger than all the other commodities.

PGMs
Platinum was trading at $1300/1306 (1215 GMT).
Spot palladium was trading at $332/338 an ounce (1215 GMT).

Oil
Crude oil prices soared above the psychological $80 a barrel last night and remain near all time record highs. The Iranian situation bears watching as the U.S. seems likely to press for sanctions against Iran in the coming days.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

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.

Fair Use Notice: This newsletter contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of financial and economic significance. At all times we credit and attribute the copywrite owner and publication.
We believe this constitutes a 'fair use' of any such copyrighted material as provided for in Copyright Law. The material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for economic research purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.