-- Posted Thursday, 13 March 2008 | Digg This Article | Source: GoldSeek.com
Gold Gold was up $4.90 to $979.20 per ounce in trading in New York yesterday silver was up 31 cents to $19.95 per ounce. In Asian and early European trading gold continued to rise. The London AM Gold Fix at 1030 GMT this morning was at $975.75, £483.26 and €630.90 (from $980.50, £485.47 and €633.40 yesterday).
Déjà vu all over again in the world’s markets overnight and this morning as the latest in a long line of Federal Reserve interventions was realized to be another finger in the dyke of the U.S. and global financial and economic crisis. Risk aversion is seeing stock markets and the dollar under pressure again this morning and gold has rallied to a new record high (at $991.40).
Increasing global safe haven demand for gold is being met with a falling supply of gold. Production in South Africa has fallen again with gold output in January falling 16.5% year on year. South Africa’s gold production has plummeted by some 75% since 1970 (from over 1,000 tonnes in 1970 to only 272 tonnes in 2007). Giving further credence to the theory that the world has reached the peak in gold production.
Oil has again surged to new record highs above $110 confounding the usual ‘don’t worry be happy’ pundits who declared that oil was a bubble at $50 through to $100 per barrel. Gold will do the same thing in the coming weeks. Analysts who are either uninformed or would prefer not to face reality will say gold is overvalued and due for a correction (for the umpteenth time – as the same thing was said when gold was at $500, $600, $700, $800 and $900). They will be proved wrong again as gold is more than likely to surpass it’s inflation adjusted dollar high of $2,300 per ounce in the next 3 to 7 years.
Unfortunately misguided and dangerous prognostications will have lulled many investors into a continuing false sense of security. Thereby resulting in the majority of investors being exposed to the coming serious recession in the UK, US and much of the western world. Over optimism and irrational exuberance loses investors money.
Paying lip service to diversification is particularly dangerous in the current times. Individual, pension and institutional investors are not diversified simply by allocating to cash, property and equities. Every portfolio also should have an allocation to commodities to protect against the ravages of inflation and an allocation to the finite currency of gold – which is the essential financial insurance of a truly properly diversified portfolio.
The confluence of a possible energy and inflation crisis, monetary crisis (centered on the current global reserve currency the dollar), credit crisis and likely coming solvency crisis is a classic perfect financial storm.
A ‘hear no evil, see no evil’ approach to finance and economics can be extremely injurious to an individual, company and nation’s financial health. While we all hope for a benign outcome to this the most serious financial and economic crisis since the Great Depression, it is important to deal in reality and be prudently prepared for any likely fallout from this economic crisis.
As ever, paying down debt, avoiding extravagant and unnecessary consumption, risk aversion and real diversification should be the order of the day.
Support and Resistance Gold’s support is now at $960. Resistance is at today’s new record nominal high of $991.40 and at the psychologically and technically important $1,000 per ounce mark.
FX Commentary Again the dollar thrashing continues as the €uro hits new highs against the Greenback in overnight trading and reached a new record of 1.5617. To look at this in a historical perspective that is 1.9785 against the old Irish Punt, 1.2500 against the Deutsche Mark and one US dollar would now only buy you 4.21 French Francs.
At 8.30 this morning the dollar broke through the 100 level against the Japanese Yen. This is a level not seen since 1995. The combination of dollar aversion, risk aversion and carry trade unwinding are creating a head of steam for the dollar bears.
The other Yen crosses are being driven lower by the dollar/yen element but the impact of this on the carry trade should not be underestimated. Sterling is trading at 203 against the Yen and as all the high yielding currencies are continually coming under pressure against the Japanese currency, carry trade capitulation could be on the horizon. Hedge funds leveraged carry trade positions that have been grinding higher over the past number of years are starting to fall and fall fast. There is an old market saying that quips “the bulls climb the stairs but the bears jump out the windows”. The question is where does the money flow to, as it flows out of the carry trades? As equities continue to look weak and the Treasury markets look overvalued, the hard assets of the commodity market and especially the precious metals continue to look like the safest place to store funds.
In the high inflation and low interest rate environment that we are experiencing there is one old market saying that does not ring true: “Cash is King!”. Not any more - the King is dead long live gold.
Silver Silver is trading at $20.33/20.37 at 1030GMT. PGMs Platinum is trading at $2090/2100 (1030GMT). Palladium is trading at $510/515 per ounce (1030GMT).
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