Spot gold was trading at $665.50/666.00 an ounce as of 1215 GMT.
Gold's sideways and rangebound trading continued in Asia and Europe after yesterday's marginal increase in price of 0.23%.
Gold is in a very tight range between $660 and $670 for the last 5 days. Since the start of August it is in a tight range between $648 to $675. There is very strong support at the 65 week moving average at $645. Gold has remained above the 65 week moving average since the inception of the bull market in 2001.
Further indications that the global credit crisis is far from over was given in a report by Royal Bank of Scotland on the liquidity crisis and in sell offs in carry trade currencies due to increasing systemic risks in New Zealand and Australia (see Forex and Gold below).
A liquidity crisis in the commercial paper debt market could force “firesales” of as much as $43bn in assets, according to an analysis by the Royal Bank of Scotland. A swathe of off-balance sheet vehicles run by banks and asset managers that buy bonds backed by mortgages and other debt are facing forced asset sales to fund their short-term liquidity requirements. Such vehicles have faced a dramatic funding crunch in the short-term CP market after investors fled to safer instruments. Analysts at Unicredit said the price declines due to forced sales could trigger sell-offs at other SIVs “in a domino-style action.”
Dow Jones reported that a London trader said that there was "huge" selling on the London PM gold fix yesterday, which was likely related to option-expiry for the August 31 settlement, knocking spot gold off session highs. There were "enormous" volumes during the silver fix implying that the sales were option-related, rather than central bank-related. "I'm not aware of any central banks trying to offload silver (which) leads me to believe it's (all) option-related," he said. Central bank selling typically occurs on London's PM fix. Gold and silver have often rallied subsequent to options expiration.
Gold Supply and Demand China's gold output has increased with China producing 145 tons of gold in the first seven months of the year, a rise of 15.44 percent over the same period last year according to statistics of China Gold Association.
This extra supply will likely be superceded by significant increases in demand in China itself but also in the Middle East through Turkey and in India. Turkey’s bullion imports could set a new record this year. “Consumption is stronger than last year and as good as 2005,” Murat Akman, Turkey general manager of the World Gold Council (WGC) told Reuters in an interview on Tuesday. Bullion imports into Turkey hit a record 270 tonnes in 2005.
India's gold demand has risen by as much as 72% in the first half of the year. A report from the World Gold Council says demand for gold in India reached an all-time high of 317 tonnes in the second quarter of 2007.
Silver Spot silver is trading at $11.85/11.87 an ounce (1215 GMT). PGMs Platinum was trading at $1260/1265 (1215 GMT). Spot palladium was trading at $328/332 an ounce (1215 GMT).
Forex and Gold Markets continue to be cautious about the prospect that yet more financial institutions are exposed to the U.S. credit crisis and by concerns that the crisis will spread from the U.S. to the UK and subprime markets in other countries creating further systemic risk. House prices in the UK barely rose nationally in July and have actually fallen for two months in a row in the West Midlands, Yorkshire & Humberside, and Wales.
There have been sharp sell offs in carry trade currencies due to increasing systemic risks in New Zealand and Australia. Bloomberg reports that the Australian and New Zealand dollars fell against the yen after an Australian hedge fund filed for bankruptcy protection on subprime mortgage defaults, spurring sales of higher-yielding assets bought with loans from Japan. The two favorites for the so-called carry trade have suffered the biggest loss of the 16 most-active currencies in the past month as the U.S. housing crisis sent equity markets lower and eroded demand for riskier investments. Basis Capital Fund Management Ltd. reignited credit concerns after it sought to liquidate the assets of its Basis Yield Alpha Fund. "Another hedge fund causes a sell-off in Aussie and kiwi,'' said Charles Wiggins, senior dealer at Custom House Global Foreign Exchange in Sydney, referring to the currencies by their nicknames. "These funds are coming out of the woodwork and you have so many of them, no one is really sure how much exposure to the subprime market is out there.''
New Zealand's finance industry was thrown into further turmoil yesterday when Five Star Consumer Finance became the seventh finance company in 18 months to be put into receivership.
The euro has picked up some ground versus the dollar, trading up to $1.362 in early trading. Markets, however, remain wary about pushing it too high given uncertainty surrounding next week’s ECB policy meeting. Today could prove to be a busy one with a host of key data due for release including revised Q2 GDP data in the US.
Increasing risk aversion will gradually lead to greater demand for the Yen (JPY), the Swiss Franc (CHF) and gold in the coming months and should see them increase in value against most currencies but especially the USD.
Oil With a lot of attention being paid to stock markets, oil has again rallied to near record highs. Oil continued to climb towards $74 on Thursday, extending the previous day's two percent rise following an unexpectedly large drop in crude and gasoline stocks in top consumer the United States. U.S. crude was up 28 cents at $73.79 a barrel by 4:59 a.m. EDT, having jumped $1.78 on Wednesday to its highest settlement in over three weeks. London Brent crude was up 13 cents at $72.26.
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