Gold Remains Strong with Near Record Crude Oil Prices and Near Record Low Dollar

By: Gold_Investments

Gold
Gold was down $1.50 to $790.20 in New York yesterday. It has traded sideways in Asian and European trading and is trading at $793.50 at 1200 GMT. Gold has corrected in other major currencies and is trading at £380.42 GBP (down from £381.50) and €547.50 EUR (down from €549.46) but remains near record nominal highs in terms of GBP and EUR respectively.

The record high London Gold Fix in euros is at €561.40. Gold has only been fixed in euros since 1st January 2000, before that date it is shown in two currencies only, the pound sterling and the U.S. dollar.
On Wednesday 10th May 2006, gold reached its highest price since 1980 in pound sterling. The morning London Gold Fix was £378.249, beating the previous peak of £371.066 on 21st January 1980. The London a.m. Fix on October 29th was £385.12 in pound sterling, a new all time record high.

Gold is remaining strong with near record oil prices and near record low dollar prices despite the serious stock market decline yesterday. There was much misguided talk that gold was now correlated with the wider equity markets when it sold off briefly in the early stages of the credit crunch. Some suggested that "the nature of gold has changed from a safe-haven asset to a trader's asset" and that as a lot of "fast money" and hedge fund money had entered the gold market that gold was now correlated with the wider markets. More recently, gold has remained resilient despite market sell offs and its non correlation is reasserting itself over the medium and long term. This is precisely why it remains the ultimate safe haven asset as used by the central banks of the world.

Credit Suisse reaffirmed this safe haven status and the continuing importance of gold as an essential monetary reserve to central banks in their recent report which said that gold would surge to $1,000 per ounce in the next 4 years. Credit Suisse analyst David Davis said "we find that over the last 18 years, apart from on three occasions, the supply of gold has been in deficit. This primary deficit has been masked by the secondary supply of gold into the market mainly from central bank sales. We believe central bank sales will wither going forward and the banks could become net buyers of gold."

Forex and Gold
The dollar remains under pressure trading near record highs versus the euro at 1.4480 and at 2.0850 versus sterling.

Risk aversion again became paramount yesterday. The dollar fell sharply against most currencies on a move out of riskier assets as stock prices fell over renewed concerns about the global financial sector. The Dow Jones index tumbled by 362 points following a brokerage downgrade of Citigroup and news that the Fed had pumped $41bn of temporary liquidity into the banking system. A weak U.S. manufacturing ISM survey added to pressures on the dollar.

The U.S. Federal Reserve being forced to pump another 41bn USD into money markets yesterday is extremely bearish for the U.S. dollar. It was the largest injection since the 50bn put in after the September 2001 terrorist attacks on New York and Washington, prompting fears that the world's banking sector may be into further multi-billion dollar write-downs.

Market attention for the day will be on the payrolls figures. A negative figure could lead to further sharp declines in the dollar and safe haven buying of gold.

Silver
Spot silver was trading at $14.29/14.31 (1130 GMT).PGMs
Platinum was trading at $1442/1446 (1130 GMT).
Spot palladium was trading at $369/372 an ounce (1130 GMT).

Oil
Oil prices rose Friday in Asian and European trading after the previous session's decline prompted fresh buying amid expectations that crude futures will continue to test new records because of tight supplies. U.S. crude rose $1.10 to $94.59 a barrel, having fallen by $1.04 yesterday after striking a record high of $96.24. Brent crude was up $1.32 to $91.04, off its record high of $91.71 from the previous session. The contract on Thursday fell $1.04 to settle at $93.49 a barrel after rising as high as $96.24, a new trading high.

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