Gold & Silver Market Morning, January 26, 2012

When the Fed threw a bucket of cold water on the blithe attitude of the last week [see below] the gold price took off like a shot from a gun and hit $1,710 by New York’s close. Asia and London kept the price the same and the euro rose only slightly to 1€: $1.3110 ahead of the gold Fix. At the Fix gold was set higher at $1,713.00 and in the euro at €1,300.585. The euro stood at €1: $1.3171. Ahead of New York’s opening the gold price went higher to $1,720.00 $65 higher with the euro at €1: $1.3163, 2 cents higher, leaving the euro price of gold at €1,306.69 up €31.

Silver was sent soaring by the gold price to shoot through resistance to open in London at $33.11. Ahead of New York’s opening silver stood at $33.48 nearly $2 higher.

Gold _{(very short-term)}

Again, the gold price should have a stronger bias in New York today.

Silver _{(very short-term)}

Again, the silver price should have a stronger bias in New York today.

Price Drivers

What a difference a day makes. When the Fed indicated that interest rates were going to be held down until late 2014, inflation would not breach 2% but long term rates could climb too 4% or more, gold bolted through $1,700 and quite rightly. And this was not U.S. gold buying as the gold ETF’s did not change. Today may be different though? If clearly sluggish economic conditions persist for the next two years then one has to ask the question, ‘why should long-term rates rise.’ It certainly won’t be because a boom situation requires rates to rise. More likely the continuing slip in confidence in the dollar will be the cause. The euro didn’t bolt up so it wasn’t solely a weakening dollar, more like a broad slip of confidence in the future of developed world economies and their currencies.

Precious metal markets have been ignoring the broad sweep of fundamentals that pointed to today’s action, blithely hoping that ‘it’s not so bad’ and things can’t get worse. Well they just did! And this picture doesn’t come from a doomsayer, but directly from the Fed, so we should all be sitting up now.

Over the pond in Europe, one is still watching the Greek tragedy unfold. But there is a slight difference today. When a situation turns, rather like a man riding a bicycle reaching the top of a hill, his momentum slows too, so that it takes just a slight change of effort to change that momentum. Two factors have now given that slight change, which will dictate future events. First the intransigence of the E.C.B. in being unwilling to take a haircut on Greek debt and second the pointer from Angel Merkel that we may not see a solution to the current impasse between creditors and debtors over Greek debt. Do not be surprised to hear an explosive announcement of failure after the markets have closed, one day soon. You may then be able to have Greek holidays at the cheapest price imaginable then? We look at this more closely in this week’s newsletters [So subscribe through www.GoldForecaster.com or www.SilverForecaster.com].  

Regards,

Julian D.W. Phillips for the Gold & Silver Forecasters