-- Posted Wednesday, 22 August 2007 | Digg This Article

Gold
Spot gold was trading at $657.50/658.00 an ounce as of 1215 GMT.

Spot gold has continued to trade sideways and remains in an extremely tight range for the last four days between $653 and $660 and in a range between $648 to $675 since the start of August. There is very strong support at the 65 week moving average at $644. Gold has remained above the 65 week moving average since the inception of the bull market in 2001, as seen in the chart below.

Gold is strongly supported by increasing physical demand from a variety of sources including record global gold jewellery demand, increasing demand from the Indian sub-continent and also the StreetTRACKS ETF and other ETFs (see below).

- Global demand for gold jewellery in the second quarter of 2007 has reached a record $14.5 bn mark, a very significant 37% more than the corresponding period of 2006, according to figures released by the World Gold Council (WGC). Demand was particularly strong in China, Russia and the Middle East and Gulf countries which saw demand rise by 32%, 27% and 21% respectively.

- Demand in the subcontinent has remained robust in the down season and we are now entering the wedding season when demand is normally far higher than usual. Indian ex-duty premiums were $3.92 on the PM fix yesterday, the rupee remains strong at R41.00 to the USD and the Indian stock market has sold off less than most international stock markets. The 'wealth effect' is growing in India with the emergence of a huge middle class which is bullish for gold.

- Finally, ETF demand for gold has continued to grow and has likely increased with the recent market volatility. Gold held by StreetTRACKS Gold Shares, the world's largest bullion ETF, surged to a record level at 514.21 tons as of Monday, compared with about 507 tons on Friday. Investors tend to buy gold ETFs to diversify their assets and ETF investors tended to hold on to the funds unlike speculators in futures markets because gold was used as an alternative investment to balance their portfolios against volatility in other financial markets. That is a very significant increase in one week and shows that investment demand for physical bullion is increasing.

Credit Crisis
Fears regarding the US housing/mortgage and hedge fund/credit derivatives nexus remain the key focus. While Tokyo stocks were flat overnight most stock markets in Asia and Europe have rallied but we are a long way from being out of the woods yet and investors should and will likely remain nervous of riskier assets.

The Dow Jones also ended in negative territory despite the growing speculation of a near term rate cut from the Fed continues to build. Expectations of a move to lower the Fed funds rate after Bernanke told the Chairman of the Senate Banking Committee that the central bank would use “all available tools” to calm financial markets. However, Friday’s move to cut the discount rate seems to have done little to settle market nerves. Treasury Secretary, Paulson, said on CNBC that the President's Working Group on Financial Markets had been 'reenergised' and that the turmoil "will extract a penalty on the growth rate" of the US economy.

Silver
Spot silver is trading at $11.63/11.65 an ounce (1215 GMT).
While technically silver is now very damaged, the fundamentals on silver are as strong as ever and this will likely be seen as one more volatile sell off in a multi year secular bull market.

PGMs
Platinum was trading at $1233/1238 (1215 GMT).
Spot palladium was trading at $320/325 an ounce (1215 GMT).

Currencies, the USD and Gold
The euro and the pound were both higher against the US dollar on Wednesday as global stock markets remained stable in spite of a worldwide credit crunch. The Euro bought US$1.3489 in morning European trading, up from the US$1.3468 it bought in New York late Tuesday after US Treasury Secretary Henry Paulson insisted the US would get safely through the credit crisis. The British pound rose to US$1.9838 from US$1.9822, even as sentiment gained that the Bank of England may leave its benchmark interest rate unchanged at 5.75 percent when it meets next month.

Oil
Oil prices recovered slightly in early London trade after yesterday's sell off when fears Hurricane Dean would damage oil installations in Mexico eased.

 

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-- Posted Wednesday, 22 August 2007 | Digg This Article

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