Gold Falls Back below $800 Towards Support at $780

By: Mark_OByrne

Gold's sell off continued yesterday and despite mounting concerns about the health of the U.S. financial system, gold has fallen to 11 month lows. After closing below recent support at $780, gold continued to fall in afterhours electronic trading before a slight recovery in Asian and early European trading.

Oil and the dollar have not moved significantly in either direction and thus gold is searching for direction and may take direction from moves in equity markets and from the continuing strong physical demand internationally.

Oil has remained flat despite OPEC production cuts and continuing concerns regarding Hurricane Ike's potential impact on oil and gas production in the Gulf of Mexico. Wholesale gasoline along the Gulf Coast jumped 12 percent yesterday, the biggest increase in almost three years, as Hurricane Ike approached the region responsible for 48 percent of U.S. refining capacity.

The dollar remains extremely overbought especially given the unfolding debacle on Wall Street, the epicenter of the U.S. financial system. Fannie Mae, Freddie Mac and Lehman Brothers and Washington Mutual's nationalisation and solvency issues are very bearish for U.S. bonds and the U.S. dollar.

Despite this, sentiment towards the precious metals on Wall Street and in the media is very bearish right now. There is simplistic reporting and constant references to how gold has fallen 25% from its ‘peak' and failure to point out however that gold remains up by more than 18% since the start of the credit crisis – unlike the vast majority of asset classes. This is likely a good contrarian indicator that we are near to a low in this recent correction. However, for those with short term horizons we have constantly cautioned about the risk of “catching a falling knife”. Markets tend to ‘trend' in any given direction for longer than participants expect. Those with long term horizons should take this opportunity to buy gold bullion with both hands.

Today's Data and Influence
The main economic releases of note today are UK trade balance figures at 09:30 GMT and a Eurozone growth forecast update, due out at 10:45 GMT.

Gold and Silver
Gold is trading at $774.00/774.70 per ounce (1200 GMT).
Silver is trading at $11.25/11.29 per ounce (1200 GMT).

PGMs
Platinum is trading at $1204/1213 per ounce (1200 GMT).
Palladium is trading at $226/232 per ounce (1200 GMT).

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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