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Gold
Gold rose to its highest level in
2010 (highest since December 4th, 2009) and new record highs in euros,
Swiss francs and British pounds as ratings downgrades of Portugal and Greece
fanned sovereign risk and contagion fears. Gold dipped to $1,146/oz early in
New York before rising sharply to $1,164/oz on the downgrade news. It then
saw profit taking and closed with a gain of 0.7%.
Gold is currently trading at
$1,165/oz and in euro and GBP terms, at €885/oz and £767/oz
respectively. Importantly, equities and commodities (including oil and
copper) sold off aggressively yesterday after the downgrades sent investors
out of riskier assets. Gold due to its safe haven currency status was one of
the few commodities to rise.
 
Gold in British
pounds – 1 year (daily).
Gold is rising on the growing
realization that while the Greek debt tragedy may be reaching its end, we may
only be in the middle acts of a wider international tragedy. Fixed income
traders are beginning to price in worst case scenarios with a significant
spreading of sovereign spreads. Indeed, market participants not known for
alarmism are now warning that there is the potential for another Lehman style
systemic meltdown. Some are even advocating the nuclear option of governments
creating money in extremis in order to directly purchase government bonds on
a massive scale. Given this scenario and the fact that we remain in the worst
crisis since the Great Depression, investment and central bank demand is set
to remain robust for the foreseeable future (see News).
Gold in British
pounds – 30 day (tick) - new record highs last night at £768.86
per ounce.
In a new Lehman style scenario
gold could be susceptible to another bout of short term weakness (as
leveraged players move to the sidelines) but increased safe haven demand for
gold should see it recover quickly and continue to outperform other assets.
In a world of continuing debt monetisation, quantitative easing and currency
devaluation, gold is likely to remain an important asset allocation.
Soon after Portugal’s
downgrade by Standard & Poor’s gold surged (rising from $1,145/oz
to $1,172.60/oz) on safe haven demand. It rose strongly in dollars but by
even more in other major currencies - indeed it was strong in all major
currencies except the yen which was strong yesterday despite increasing
concerns about the Japanese fiscal position. Investors are increasingly
skeptical of governments abilities to magic away the significant fiscal
challenges facing sovereign nations and the very uncertain situation is
benefitting gold.
Gold needs to close above
resistance is at $1,165/oz (which was breached yesterday but not closed
above) before it can challenge the December record high at $1,226/oz (see
chart below).
Gold’s recent gains do not
the severity of the Greek debt and European sovereign debt crisis justice.
Indeed, it looks like there may be delayed reaction to the crisis with
many markets remaining complacent about the ramifications of contagion in
international debt markets. It is difficult to tell why gold has not gotten a
bigger bust yet. The operative word here is likely ‘yet’. As was
the case at the outset of the crisis, some bears pointed to gold’s fall
in price when Bear Stearns collapsed and then Lehman’s collapsed as
some kind of proof that gold was no longer a safe haven. In the fullness of
time, how wrong they were. Those keeping a historical perspective and
remaining patient will be rewarded.
Gold in USD - 6
months (daily) - resistance is at $1,165 and then at $1,200 and $1,226 per
ounce.
Indeed the recent record (nominal)
highs for gold in euros and Swiss francs likely portend coming new record
highs in dollars in the coming weeks.
It is hard not to like gold at
this time as the fundamentals are extremely favourable. Having said that
those taking speculative punts using leverage could get burnt as gold prices
could fall in the short term prior to challenging the record at $1,224/oz and
possibly as high as $1,500/oz later this year.
Silver
Silver has dipped from $18.21/oz
to $18.04/oz this morning in Asia. Silver is currently trading at $18.09/oz,
€13.74/oz and £11.91/oz.
Platinum Group
Metals
Platinum is trading at $1,727/oz
and palladium is currently trading at $553/oz. Rhodium is at $2,900/oz.
News
Gold holdings in the SPDR Gold
Trust, the biggest exchange-traded fund with gold bullion holdings, increased
for a second day to a record 1,146.83 metric tons yesterday.
Gold assets in exchange-traded
products of ETF Securities Ltd. in London and Zurich rose 0.4 percent
yesterday to 7.68 million ounces, according to information on the
company’s Web site. All of the gain was in London, according to the
company. (Bloomberg)
Embattled Goldman Sachs Group Inc.
has reduced its gold forecasts because of expectations that a
“broadening economic recovery” will lead to higher U.S. interest
rates. Gold will average $1,165 an ounce this year and $1,350 in 2011, Eugene
King, Peter Mallin-Jones and Andrew Byrne said in a report yesterday. It is
worth remembering that Goldman Sachs have been bearish on gold in recent
years and do not have a great track record at predicting gold price movements.
Russia's total gold output was
down 7.9 pct y/y in Q1, 2010. Total gold output, including gold produced as a
by-product and refined from scrap, fell a smaller than expected 7.9 percent
year-on-year in the first quarter to 28.9 tonnes, the industry lobby said.
That was slightly less than the 10 percent decline forecast by the lobby, the
Russian Gold Industrialists Union.. Mined output fell 11.9 percent to 23.3
tonnes, while the volume of gold produced as a by-product and refined from
scrap rose, the lobby said in a statement on Tuesday. Russia is the world's
No. 5 gold producer and its reserves are second only to South Africa's. The
country raised gold production by 11.2 percent to 205.2 tonnes (6.6 million
ounces) in 2009 and plans further increases as new mines come on stream.
"The fall in gold mining output occurred mostly in three regions --
Krasnoyarsk region, Amursk region and Chukotka," the union said.
"The main reason was the fall in the gold content in the ores being
mined." (Reuters)
Reuters reports that central banks
are set to remain "large net buyers of gold for the foreseeable future,
for years to come," according to the CPM Group. Their latest report said
that central banks turned to buyers from sellers of gold for the first time
in 20 years in 2009, driven by Chinese stockpiling and worries over global
currencies. Investment demand in gold is expected to grow further this year,
due to safe-haven demand amid economic uncertainty, the New York-based
company said in its Gold Yearbook 2010. The annual report said,
official gold demand resulted in net buying of 15.1 million ounces (470
tonnes) in 2009, the sector's first net addition since 1988. Central banks
rekindled interest in gold as a hedge against potential repercussions after
the worst economic crisis since the Great Depression
Mark O’Byrne
Goldcore
Mark 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
5010
(UK)+44 203 086 9200
(US) +1 (302)635 1160
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