Gold went from as low as $1,119/oz up to $1,128/oz in US trading before
closing with a gain of 0.32%. It has range traded from $1,120/oz to $1,125/oz
in Asian and European trading this morning. Gold is currently trading at
$1,123/oz and in Euro and GBP terms, at €827/oz and £741/oz
Gold priced in sterling is still
in an uptrend as seen in the chart. Gold is only up 11% in sterling terms in
the last 12 months (March 19th, 2009) and after a long period of correction
and consolidation may be set for further gains in the coming weeks in the run
up to the expected election on May 6th.
The yellow metal is currently
trading near a support area of £724-735/oz, and is trading well above
its 50-day moving average. If prices climb above the record nominal high of
£758/oz set earlier this month, the next resistance level would be the
psychological level of £800/oz. If prices fell below the
£724-735/oz area, then the metal may drop back to £670/oz area,
which has been strong support since November.
Given the concerns about the
recovery in the UK housing market, the deteriorating public finances and
increasing economic uncertainty, there's more risk to the upside then the
downside. We're seeing a significant demand for gold as a currency due to
uncertainty regarding the outlook for currencies and sterling. The element of
uncertainty about the looming British election on May 6th is important.
Markets don't like uncertainty and this should see gold remain in a bull
market in sterling for the foreseeable future.
Gold's record adjusted for
inflation high in dollars was at $2,300/oz and the inflation adjusted
sterling high was over £1,000/oz. Gold reached a record nominal high in
sterling of over £300/oz on a few occasions in the early 1980s (see
chart below) and that would equate to over £1,000/oz in today’s
money. This shows that while sterling gold has had a nice run up in
recent years it is not overvalued from a long term historical perspective.
Gold in British pounds in nominal
terms (non-inflation adjusted) 1971-2010
Silver has range traded from $17.25/oz to $17.39/oz this morning in Asia.
Silver is currently trading at $17.33/oz, €12.74/oz and
Platinum is trading at $1,628/oz and palladium is currently trading at
$479/oz. Rhodium is at $2,520/oz.
Central bank demand for gold last year was the highest since 1964 and seems
likely that this trend will remain for the foreseeable future due to currency
and sovereign risk. Even with gold near record nominal highs, central bankers
see the merits of having small allocations to gold for diversification
The euro has again come under
pressure as EU leaders remain at loggerheads as to what to do about Greece.
The recent misplaced optimism about some sort of bail-out package for Greece
may be fading. Any sort of bail-out for Greece, under present EU rules may
actually be illegal. Also of importance is the fact that political and legal
considerations in Germany make any sort of support for some form of cash
bailout extremely problematic for Angela Merkel.
The German government has not
ruled out aid from the International Monetary Fund for Greece and has said
that Greece had not yet asked for financial aid and so there had been no
decision on help yet. "The German government does not rule out IMF
support," the German government spokesman said.
Markets have so far remained
sanguine about the geopolitical tensions between the US and China over the
undervalued Chinese currency (along with Taiwan, Tiber, censorship etc.) but
there is a growing risk that the simmering tensions could escalate. The
letter from the 130 US House members was a dangerous step that could
potentially backfire with China deciding to stop financing the massive and
increasing US deficits by curtailing their purchases of US Treasurys. This
could lead to the dollar falling in value in world markets and to long term
interest rates rising
O'Byrne is the Managing Director of Goldcore, Ireland's Asset Diversification
and Wealth Preservation Specialist. He is regularly quoted and writes in the
financial media and was awarded Ireland’s prestigious Money Mate and
Investor Magazine Financial Analyst of 2006.
You can contact him by calling : the GoldCore
Bullion Services Team on
(Irl)+353 1 632
(UK)+44 203 086 9200
(US) +1 (302)635 1160