Gold and silver fell marginally yesterday in lacklustre trade on thin volumes. Gold appears to be consolidating above $1,200/oz and support can be seen at $1,177/oz and $1,145/oz (see chart below). As ever in the short term anything could happen but given the continuing degree of sovereign risk, gold is more likely to move higher than lower in the medium term and $1,300/oz remains possible over the summer despite the traditionally negative season. Gold is currently trading at $1,234/oz and in euro, GBP, CHF, and JPY terms, at €998/oz, £834/oz, CHF 1,374/oz, JPY 112,664/oz respectively.



Gold in USD - 1 Year (Daily).

Many banks and bullion dealers have recently been revising up their gold forecasts (the majority of which were again bearish on gold this year). Our year end price target of $1,350/oz to $1,400/oz remains viable and indeed there is the possibility of a spike to higher levels.

While Wall Street was flat overnight and Asian markets mixed, European equities have risen so far this morning showing risk appetite continues and for now markets are ignoring continuing significant financial, economic and monetary risks.




Cross Currency Table - 1030 GMT.

The Swiss franc, the euro, the pound and gold are stronger this morning with the US dollar and commodity currencies coming under pressure (see Cross Currency Table above). Coffee has surged 20% in a 6 day surge and oats have surged 40% in a week. The Reuters CRB remain below its highest levels of earlier this year and whether this is the start of a trend for higher commodity prices remains to be seen.

Gold remains sanguine with gradual movements up and down and rarely has seen movements of more than 2% in a day. Inter day volatility has jumped recently by gold's move up in recent months has been gradual and gold is only marginally above the price it was trading at in early December 2009. The six month period of consolidation and gradual rise would suggest that the (nominal) price highs seen recently are sustainable and not a bubble as proclaimed by some. The sharp movements seen in the coffee and oats markets are the type of price action that one would expect to see in the gold pits when we reach a gold mania or 'gold rush' or a bubble on a par with the 1970s when gold rose 25 times in 9 years and over 100% in one year - 1979. In 1979, gold rose 140.27 percent - from $US 234.40/oz to $US 563.20/oz.

The recent calm in debt markets has ended as Greek, Portuguese and Spanish bonds fell sharply and the Spanish German bond spread rose to its highest since the inception of the euro yesterday. Investors bought Spanish debt at a government auction today, assuaging concern that the nation will struggle to meet forthcoming redemptions for the moment. The sales were likely only possible after the sharp falls in price and rising yield seen in recent days. Spanish government bonds lost investors 4.3 percent this year, compared with returns of 6.5 percent for German bonds and a 15 percent loss for Greek debt, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Inflation pressures remain internationally as seen in Britain where the CPI for May was at 3.4% and remains more than twice the rate in the eurozone and has been significantly above target since December. Many economists and the Bank of England maintain that this is a short term blip higher and is "temporary" and appear to underestimating the risk of inflation and stagflation. Especially, as VAT is likely to rise in next week's emergency budget. Given the UK's poor fiscal position, sterling's underperformance versus gold is likely to continue.



G10 Currencies and Precious Metals Performance - Quarter to Date.