-- Posted Wednesday, 16 April 2008 | Digg This Article
| Source: GoldSeek.com
The Morning Gold Report by Peter A. Grant
April 16, a.m. (USAGOLD) -- Gold has set a new high for the month, underpinned within the recent range by renewed dollar weakness and continued oil strength.
The dollar has fallen to new record low against the euro in the wake of today's earlier upward revision to Eurozone inflation figures. With inflation now running at 3.6% y/y, any likelihood of easier monetary policy in the near future by the ECB has been dealt yet another blow. The prospect of continued widening of the interest rate differentials has pushed the euro to new all-time highs against the dollar and sterling.
EUR-USD is zeroing in on the 1.6000 level and penetration would bode well for an upside extension to 1.6200. EUR-GBP is approaching 0.8100 with potential toward the 0.8300 level. Euro has also posted solid gains against the yen and Swiss franc this week.
The latest round of dollar weakness increases the appeal of gold as an alternative investment. Further upward retracement in the yellow metal is likely, returning additional credence to the underlying uptrend. Look for further dollar weakness against the low yielding currencies as an additional signal that the uptrend in gold is about to re-exert itself.
The sharp rebound in platinum over $2,000 is also a bullish signal. A violation of support at $2,036/47 would shift focus to the more important $2104.16 level. Penetration of the latter would be a strong signal, favoring a resumption of the dominant uptrend.
Oil has pushed to another new high above $114 a barrel, boosted by the weak dollar and fresh inflows of speculative capital amid growing supply concerns. With US demand slumping as the economy worsens, OPEC is unlikely to increase production. In fact, even when demand was still robust, OPEC has blamed the recent record prices on the falling dollar.
As the dollar declines, commodities become increasingly attractive as a hedge against inflation. Simultaneously, commodities priced in dollars, such as gold and oil, become less expensive to holders of foreign currencies.
We have an indication that the funds are beginning to reestablish their commodity positions. It was profit taking on the part of the funds as the first quarter came to an end that triggered the recent corrective phase. With the stock market looking less and less appealing, the funds could come back in a big way, which would drive gold back above $1,000.
There are reports out of China's Yunnan province that power supply to metal producers has been cut due to falling coal stockpiles. We made note of the potential for power disruptions in China in the midst of the South African power crisis.
While a coal shortage in a particular province is not particularly concerning, China's rapid growth has been and is likely to continue to stress the power grid. Now that China is the world's largest producer of gold, this is just one more thing to watch when it comes to the tightening supply side of the equation highlighted in Mike Kosares recent article Golden Gut Check.
Gold Market Movers:
US industrial production for Mar was up 0.3%, better than market expectations, versus a revised figure of -0.7% in Feb.
US CPI for Mar 0.3%, slightly lower than what the market was looking for.
US housing starts for Mar tumbled 11.9% to .947 mln units, much worse than the market was expecting, versus a revised figure of 1.075 mln units in Feb.
Canadian manufacturing shipments for Feb +1.6%, much better than expected, versus +1.3% in Jan.
US MBA mortgage index for the week ended 11-Apr +2.5%. Purchases -0.8%, refis +5.2%.
EIA oil stocks for the week ended 11-Apr at 10:30 EDT.
Beige Book for upcoming 29-30-Apr FOMC meeting likely to highlight recession risks at 14:00 EDT.
WSJ suggests Merrill Lynch may report $6-8 bln in new writedowns on Thursday.
Why high gold prices don't lead to supply
Bull trend in gold to continue
Biggest grain exporters halt foreign sales
