-- Posted Thursday, 27 March 2008 | Digg This Article
| Source: GoldSeek.com
The Morning Gold Report by Peter A. Grant
March 27, a.m. (USAGOLD) -- Gold is slightly easier this morning after recovering more than half of last week's corrective losses. Considerable confidence has been returned to the underlying bull trend. The rebound in oil prices and the generally soft dollar are having a supportive impact on the yellow metal.
NYMEX crude has probed back above the $106 a barrel mark on supply worries after a major Iraqi oil pipeline outside Basra was severely damaged by saboteurs. The pipeline could take up to three days to repair, but any efforts are contingent on security for the work crews. Oil was already edging higher in the wake of yesterday's EIA report that showed crude oil inventories were unchanged. The market was looking for an increase of 1.7M barrels.
The weaker dollar added impetus to the rebound in oil, making it less expensive for holders of foreign currencies. Both of these factors are seen as supportive to gold as well. Gold is a hedge against energy-based inflation and a soft dollar.
The dollar has ticked modestly higher in overseas trading, retracing some of yesterday's sharp drop. However, the dollar index remains below 72.00, keeping the overall tone for the greenback defensive.
EUR-USD moved back within striking distance of the 1.5905 all-time high yesterday. While activity has been confined to the high end of yesterday's range so far today, focus remains on dollar selling. A near term push to new record highs would put euro back on track for challenges of 1.6000 and 1.6200.
The dollar has gotten a little relief against the yen on BoJ comments that tightening monetary policy would be difficult given the weakening economy. USD-JPY has probed back above the 100.00 level, but upside potential is thought to be limited as a result of further comments that implied that intervention on the part of the BoJ to support the dollar is unlikely.
Expectations of further currency debasement resulting from additional US interest rate cuts, liquidity injections - the first TSAF auction of $75 bln is today - and the possible outright purchase of mortgage backed securities by the Fed will continue to weigh on the dollar. This is also broadly supportive to the gold market.
Rumors that the Bank of England will be buying junk mortgages have gained some traction today, despite denials of any such plan over the weekend. If the BoE can build a case for such purchases, you can be reasonably confident that the Fed has a similar plan. The consensus around the office is that if the central banks do indeed start buying junk from commercial and investment banks, it's the strongest case yet for $2,000+ gold.
We made note of strong jewelry demand last week and earlier this week on the recent pullback. While there are reports that physical demand from India in particular has tapered off as prices have rebounded, other reports highlight robust physical interest elsewhere in Asia by both jewelers and investors. At this point I think we can safely say that jewelry demand will be supportive on any dip ahead of last week's low at 904.70, and will likely come in well ahead of that level.
Gold Market Movers:
US Q4 GDP final was left unrevised at 0.6%.
US jobless claims for the week ended 22-Mar fell 9k to 366k, better than the market was expecting, versus a revised 375k figure for the previous week.
Fed to auction $75 bln in 28-day funds at first TSLF
When the going gets tough, banks yelp for nanny
More government bailouts may be on the way
UK central bank to join battle on liquidity
Stock index futures suggest a higher open on Wall Street.
