Gold and Silver's Daily Review for 1st November 2010

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A bright Monday morning saw gold run above $1,365 as the U.S. dollar slid down to nearly touch $1.40 again.


Will we see the dollar defended again? If so the rise in gold will be tempered by that defense, but we have no doubt that defensive measures will be inadequate to hold the dollar high. The worst possible set of events, won't be a George Soros attack on the dollar but dollar holding surplus nation dumping these into the defender's hands. That will disguise the event as the dollar holds up, only at some point to drop like a stone as the defense is defeated.

This is the week in which the Fed pronounces of quantitative easing as well as the mid-term elections.   The media believes that the Democrats will lose power, whereas the Republicans won't gain enough.   The economy is at stake.   Will politics take precedence over harsh economic realities and consensus rule?   At the moment it doesn't sound like it.   Likewise with QE2, it is a two-edged sword, both sides being good for gold.

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Gold – Very Short-term

While trepidation rules, gold will tend to be positive today, but dominated by the dollar to euro exchange rate still.

Silver – Very Short-term

While trepidation rules, gold will tend to be positive today, but dominated by the dollar to euro exchange rate still.

Gold Price Drivers

The U.S. dollar's gyrations against the euro seem to dictate the U.S. gold market's pricing on gold in the dollar.   We do expect both the Fed and the mid-term elections to keep the gold and silver markets relatively quiet until the both give a clear direction.

The I.M.F. announced that 32 tonnes of gold was sold by them in September.   This included the 10 tonnes to Bangladesh.   This leaves around 71 tonnes left to go and we have passed October now.   If they continue this pace of selling they will complete their sales before the end of this year.   We have no reason to believe that the central banks in the emerging world will then cease buying, so where will they get future stock from?   These buyers are not price sensitive.

We expect to see rising volatility, uncertainty and general stress levels to begin rising across the world from now on.   This will likely become an ongoing feature of the investment world.

Regards,

Julian D.W. Phillips