Gold and Silver's Daily Review for 11th August 2010
With Mr. Bernanke's statement eagerly awaited, New York hardly moved until Europe closed. Then they took the gold price up to $1,203, but Asia was in no hurry to push it up. London waited for the gold Fix for guidance [it was Fixed $1,198 in the morning], then rose to tackle the $1,200 level ahead of New York's
opening. Just before that opening it started to jump and went up to $1,205.
Gold must still get a strong foothold above $1,205 for the battle to be won. The market remains a high-risk place right now, with potentially strong moves either way. The start of Ramadan was yesterday and this is the first of a series of festivals all over the world that defines the annual gold season that takes us through to next year.
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Gold – Very Short-term
New York should show the way today as the gold price remains fixated on $1,200, but has, as yet failed to decisively given direction one way or the other. This remains a high risk area for gold until direction is clearly given. However, we do expect today to be a rising day for the gold price.
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Silver – Very Short-term
The silver price was fixed at $18.12 up from yesterday but not enough to guide investors. The Fed failed to give a clear direction so we remain in idling mode. If anything today will be a positive day for silver.
Gold Price Drivers
The Fed did not give direction. It simply continued in the same position as before, preventing a de facto tightening of money supply by putting money it received from the maturation of bonds and mortgages back into the market.
We believe they have passed the ball back to government where it belongs. Essentially the Fed told us that we have an "L"-shaped recovery that is weaker than they thought. Their present posture is simply to maintain price stability. The tools they have are not designed to do more than has been done to stimulate the economy.
It is up to government to persuade the banks to lend more generously and to stimulate the economy in other ways. Government is caught between a rock and a hard place because they must cut back on the deficit by 14% of GDP [what a job!] or stimulate to take the deficit further up. We believe that inflation is a lesser evil than deflation and they will eventually go that road.
This will also causes pain but it also has to decide whether it is time for the people to ask what can their government do for them because they have been hurt doing what they could for their government.
Julian D.W. Phillips