-- Posted Friday, 28 March 2008 | Digg This Article
| Source: GoldSeek.com
The Morning Gold Report by Peter A. Grant
March 28, a.m. (USAGOLD) -- Gold is retreating into the range after registering only limited follow-through above the halfway back point of the recent correction. Generally firm platinum, base metals and oil, along with a soft dollar are all supportive of the yellow metal despite recent corrective activity.
Not surprising to see some profit taking ahead of the weekend from those that got long near the corrective lows. A slightly more favorable indication on core inflation has weighed on the market as well. However, investment and safe-haven demand remains brisk and those seeking to get long before the funds come back in after Q1 ends on Monday should effectively limit the downside.
Solid jewelry demand is also expected to reemerge on any dip, particularly in platinum, offering further support to the market. Platinum pushed convincingly back above the $2,000 level yesterday, but modest upside follow-through today faltered ahead of the halfway-back point of the recent correction at $2,047. Key resistances at $2,104.35 and $2,116.00/50 are still thought to be the short-term attraction.
Food commodities have soared over the past year spurred by increasing global demand, price pressures resulting from bio-fuel initiatives and strong fund buying. This has certainly played into the bullish trend in gold, given its effectiveness as a hedge against inflation. These pressures began impacting the rice market around the beginning of this year as stocks fell to their lowest levels since the mid-70s.
Yesterday rice surged 30% to a new all-time high on news that Egypt had banned exports in an effort to hold local prices down. India and Vietnam have similar restrictions in place and India imposed additional export restrictions today.
Rice is a staple food for more than 2.5 billion people across Asia and the rapidly rising prices have sparked concerns about social unrest. Many Asian countries where rice is a staple also have a cultural affinity for gold. With rapidly growing middle classes, particularly in China and India, investors may be turning to gold in increasing numbers as a hedge against inflation. The specter of political and social strife also warrants safe-haven buying of gold.
The indication today from person income and spending data suggest that core inflation is running around 2.0% y/y. While this may weigh short term on gold prices, any negative impact is likely to be offset by heightened expectations that the Fed may opt for the larger 50bp rate cut at the 30-Apr FOMC meeting.
Fed funds futures presently have a 25bp cut fully priced in and odds of a half point ease are running around 50-50. April will be the seventh consecutive rate cut as the Fed attempts to stimulate the weakening economy with cheap money. Unfortunately, that cheap money isn't really being passed along to the consumer level in the form of lower mortgage and credit card rates. Instead the banks have been hoarding cash to bolster their own balance sheets.
Last week's correction, along with this week's retracement and consolidation is seen as broadly constructive to the underlying bull trend in gold. The fundamentals and technicals remain favorable and the ongoing credit/liquidity crisis will remain a major source of uncertainty in global markets. Consequently, dips in gold should still be viewed as buying opportunities.
Gold Market Movers:
US personal income for Feb rose 0.5%, better than market expectations, versus +0.3% in Jan.
US PCE for Feb up 0.1%, in line with expectations, versus +0.4% in Jan.
Michigan Sentiment for Mar final was revised downward to 69.5, below expectations, versus 70.8 in Feb.
Demand of dollar weakness: what's driving metals prices?
Jump in rice price fuels fears of unrest
