-- Posted Friday, 7 March 2008 | Digg This Article
| Source: GoldSeek.com
The Morning Gold Report by Peter A. Grant
March 07, a.m. (USAGOLD) -- Gold remains generally well bid, just shy of the much discussed $1,000 level. While profit taking ahead of this key psychological barrier has prevented penetration thus far, dips continue to attract solid buying interest. With the dollar continuing to trend lower, and oil tracking higher, it's just a matter of time before gold trades above $1,000.
The dollar has fallen to new all-time lows against a basket of currencies in the wake of Thursday's steady policy announcements by both the ECB and the BoE. With both banks focused on price risks, these non-moves were widely expected. Nonetheless, widening interest rate differentials continue to decrease the appeal of holding assets in the US.
The Fed is expected to cut rates again on 18-Mar, which will further widen the gap. Fed funds futures have caught a bid this morning, ahead of US payrolls data (8:30ET). The market seems to have gotten a whiff of more bad news and the implied yield on the Apr contracts is presently at 2.165%, suggesting a 75bp cut is now priced in and then some. The market is looking for +30k jobs for Feb, but a significant disappointment could result in an inter-meeting cut by the Fed, probably to the tune of 50bp.
Falling yields here in the States, means less demand for US treasuries and the dollars it takes to buy them. The dollar index has fallen to a new all-time low of 72.66 in overseas trading and short-term potential remains toward 72.00. The euro has climbed to a new record high against the greenback at 1.5431. Upside potential for the EUR-USD rate is toward 1.5500 and 1.5624. These levels would almost certainly equate with $1,000+ gold.
The dollar has also set a new all-time low against the Swiss franc below 1.0200, making parity look increasingly attractive. USD-JPY has probed below 102.00, which bodes well for a short-term challenge of critical support at 101.67/23. These two rates have benefited from safe haven buying in recent weeks.
In the face of a declining dollar, gold is a primary hedge. Additionally, as the Fed continues to lower interest rates in an effort to stimulate the weak economy, the inflationary impact drives prices ever higher. Gold is the classic hedge against inflation as well.
Fresh losses in the dollar are putting further upward pressure on oil, making the dollar denominated commodity more affordable to holders of foreign currencies. Oil futures set a new all-time high at 105.80. Oil got a boost this week from a surprise drop in US crude stocks and the announcement that OPEC would not increase output. However, it seems to be speculative buying and strong fund flows into all commodities that is the primary driver in oil's record rally. Gold has benefited from similar interest.
Platinum has extended recent corrective losses on speculation that South African mines may be allowed to increase power usage soon. South Africa is the world's largest producer of platinum and mines have been limited to 90% power usage for weeks due to an ongoing power crisis. Platinum reached a record high of 2290 on Tuesday this week, a 50% gain so far this year. It's not surprising to see some profit taking.
South Africa is also the second largest gold producer. The yellow metal is holding up very well in the face of possible improvement to the supply fundamentals. This may be attributed in part to the unwinding of long platinum/short gold spreads.
Gold Market Movers:
US nonfarm payrolls for Feb at 8:30ET. Market is looking for +30k, versus -17k in Jan.
BoJ leaves overnight call rate unchanged at 0.5%.
Bank of Korea leaves base rate unchanged at 5.0%.
Gold's advance continues
Standby for new subprime crisis
US dollar-gold: A perfect hyper-stagflationary storm
Stock index futures suggest a higher open on Wall Street.
