Gold and Silver's Daily Review for 20th August 2010

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It seems that the gold market is depending more and more on the Gold Fix in London both morning and afternoon, for price guidance.   Yesterday afternoon saw gold fixed at $1,233.5 and this morning at $1,230.   Gold prices have only moved slightly from these two figures.   This is important because London is where 90% of the world's physical gold is bought and sold.  


More importantly this tells us that gold is primarily a physical market now.   When gold was at $320 an ounce traders could drive the gold price up to $390 then back down again without taking possession of the metal.   Only 5% of COMEX transactions result in the delivery of the metal.  Today, through gold E.T.F.'s [which buy physical gold against a purchase of shares] and direct gold investors only consider physical gold purchases.   Leveraged derivative markets actually distract gold investors from the real thing.

We are including an article [with the important conclusions for Subscribers] on the future of the Dollar and the problems it is facing in the next issue of the Gold Forecaster.

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Gold – Very Short-term

The Fix at $1,230 this morning shows that the trading range for gold has narrowed sharply to around $1,230.   The market could move strongly from now on.   This makes today a higher risk day for gold and silver.

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Silver – Very Short-term

Silver is retreating from the Fix of $18.45 yesterday and was Fixed at $18.14 today, before trading lower, just above $18.00.   We expect today to be volatile, perhaps unpredictable.

Gold Price Drivers

The U.S. is expected to call the shots today in what could be a frantic market in New York.   The poor economic news of the week has worried markets, putting the prospect of a double-dip recession firmly as a likely outcome later in the year.   Yes, there will be arguments over the definition [worried that the sheer use of it will precipitate it] of a recession and a constant referral to what little growth there is, but the world at large will remain unconvinced.

It is becoming clearer that the U.S. consumer is becoming more and more cautious and tending to not only save but change his culture to one of more thrift and caution.   This means that the recovery will take much longer and require more stimulation before it takes hold.   By stimulation we mean that the consumer must be convinced that effective action is being taken to promote growth, far more than has been the case to date.   If the Administration or the next one does not include that in their Manifesto, expect the double-dip or slow growth to start mimicking Japan's deflation over the last decade.      This is extremely gold positive because it darkens the future.

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Regards,

Julian D.W. Phillips