Gold Gold strengthened yesterday and was up $7.70, from $729.90 to $737.10. It has traded sideways in the New York Access market and in Asian and early European trading. At 1200 GMT gold was trading at $736.90.
Gold has confounded the gold bears in recent years and is continuing to do so. Yesterday's action in gold was bullish as gold rallied on the poor economic data despite the dollar strengthening also. From the low of the day in early New York it rallied $17 in a few hours of New York trading on heavy volume (154,675 lots). Oil prices strengthened again and were trading at $81.26 a barrel in Asian electronic trading on the New York Mercantile Exchange by early afternoon in Singapore.
The FT reports that gold's movement today will likely be dictated by the employment data. “An increase in non-farm payrolls in September of less than the 100,000 predicted by the consensus forecasts would be positive for gold and a stronger rise would be negative,” said Peter Fertig of Dresdner Bank: “The second major fundamental factor, the crude oil price, is likely to remain a supportive factor, after the focus has shifted to tight supply of the oil products.”
Short term support at $724 was breached to the downside yesterday, but gold's subsequent strength and closing at the highs of the day is a positive indicator.
Merrill Lynch Investment Managers, like their counterparts in Citigroup and many other financial institutions, realise that gold remains undervalued and is likely in the early stages of a new bull market:
In a bull market, much anticipated short term corrections sometimes do not materialise and given the very strong fundamentals the gold market could continue moving higher. Strong support and robust physical demand is seen at previous resistance at $690 to $700 and the 50 day moving average at $693.
The huge call option positions on COMEX for the DEC 07 contract are another sign that significant players believe gold's rally will continue into the end of year. The total Open Interest is now 136,481. Were these options to be exercised it would represent a massive 419 tonnes of gold. India, the leading gold importer in the world, imports 400 tonnes of gold every year.
There are 24,407 contracts open at $800 which is the largest OI for any strike price. There are 12,587 contracts at $750 and unusually there are even 6831 contracts at a strike price of $1000.
HSBC's bearish ruminations on the USD and GBP in their latest report, 'Kingdom Under Siege' (see Forex and Gold below) bodes well for emerging market and commodity currencies and gold.
Forex and Gold The USD is flat since yesterday and is trading at 1.4110 and 2.0351 against the EUR and GBP respectively.
The USD index has rallied from its all time record low hit last Friday at 77.657 to 78.48 or 1.06%. This is to be expected given its fall of 5.5% from 82 in mid August. The sharp and fast sell off in the USD could lead to a correction back to previous support at 80 or to the 50 day moving average at 79.20. Below 77.657 the USD is in uncharted territory and there could be a sharp sell off down to 75.
GBP has been the darling of the currency markets in recent years. But the booming City of London and its strong pound may soon become a thing of the past.
HSBC, Britain's biggest bank, warned in a new report, 'Kingdom Under Siege' that Britain faces a stark "de-rating" by investors in coming months as growth slows and funds begin to lose confidence in the country's economic management, triggering a mass exodus of "hot money" from the City. "Sterling's outlook is increasingly taking a turn for the worse. A deeper downward move against a broad range of currencies is on the horizon."
David Bloom, HSBC's head of currency research, said signs that the Bank of England's monetary framework was "starting to fray at the edges" had begun to unsettle investors, tarnishing the City's reputation. Both the Northern Rock debacle and the decision by the Monetary Policy Committee to overrule the Governor in setting interest rates have inflicted damage. "What we have is an enormous liability. People have been very happy to park their money in Britain because of the high interest-rate culture and the country's reputation for sound management, but if you start to unpick that, it can go very fast. These investors are fickle."
HSBC expects the pound to fall from around $2.04 to $1.76 against the dollar over the next eighteen months, even though the dollar itself is in danger of losing its status as the world's "anchor currency". "There is no doubt the market has moved into dollar hating territory and there are very good reasons for this. It is no longer the sole global price setter for commodities. The role of the US dollar as an anchor currency is being eroded," said HSBC.
Silver Spot silver was trading at $13.43/13.45 (1200 GMT).
PGMs Platinum was trading at $1364/1368 (1200 GMT). Spot palladium was trading at $366/371 an ounce (1200 GMT).
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