Gold Heading for Support $850 to $860 for Good Buying Opportunity

By: Mark_OByrne

Gold was down $4  to $903.90 per ounce in trading in New York yesterday and silver was down 6 cents to $16.73 per ounce. Gold traded sideways in Asia but has sold off in late Asian and early trading in Europe and is down to $890. Silver has also fallen and is down to $16.56 per ounce.

The London AM Fix at 1030 GMT this morning was at $889.75 (down from $899.50 yesterday). Gold fixed at £452.06 (down from £455.33 yesterday) and €605.60 (down from €607.20 yesterday).

Gold has continued to sell off today due to the dollar rallying (up nearly 1% to 1.468 against the euro, up 0.3% to 1.967 against sterling and up 0.9% to 76.02 on the US Dollar Index )  and oil further weakening (NYMEX March down by 0.95% to $89.20 per barrel).  Equity markets latest dead cat bounce may already be be wilting and stock markets internationally have weakened following the weakness seen in US equity markets late yesterday.

We are now in the third day of gold's sell off and while there may be some further weakness it is again likely that this sell off will be short, sharp and shallow. As the financial, economic and supply and demand fundamentals that have led to gold's strength in recent months have not changed .

The Bush administration's final annual budget request of $3.1 trillion is another example of serious fiscal irresponsibility. Taxpayers money is being spent in classic ‘guns and butter' fashion in a way that would give even the most fun loving drunken sailor a bad name.

President Bush inherited a national debt of $5.7 trillion. Under Bill Clinton, it had grown by 35 percent. Since Bush came to power it has grown 63 percent in just seven years. The national debt stands now at $9.2 trillion and may surpass $10 trillion when President Bush leaves office.

This will lead to further pressure on the US dollar in the coming years and may lead to its recent historical status as the global reserve currency of the world being questioned.

Support and Resistance
Support is now at $850 to $860 and this should provide strong support and make a good buying opportunity for those with a medium to long term outlook.

FX
FX markets traded sideways in the majority with the Euro trading in a narrow range against the dollar. It continued to firm against Sterling too, that is until the release of PMI data out of the Eurozone, which proved to be surprisingly weak. Traders will interpret this as an the ECB being forced to reconsider its firm stance on rates however for now they are going to persist with their inflation fighting mantra.

The Bank of England Monetary Policy Committee (MPC) starts their rate setting meeting tomorrow with an announcement of a 25 basis point cut expected to be announced at noon on Thursday.

Finally the RBA raised Australian interest rates last night by the expected 25 basis points. Their higher than target CPI numbers ensured that they were  going to deliver the hike and should these levels persist then more hikes will be forthcoming. The strength in commodity prices has played no small part in the move towards higher rates.

Silver
Silver is trading at $16.49/54 at 1200GMT.

PGMs
Platinum has sold off from new record highs and is trading at $1768/1777 (1200GMT).

Palladium has also sold off and was trading at $410/416 an ounce (1200GMT)

By Mark O'Byrne, Executive Director

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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