Gold and Silver's Daily Review for 21st October 2010

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We are watching almost in slow motion as the currency disruptions unfold on the world economy.   After what appeared to be intervention in the exchange rate of the euro giving the impression that the dollar strengthened, we saw the euro climb back to over $1.40 again. 


We have no doubt that intervention will not be effective as it failed in the case of the Yen.  This leaves precious metals moving with currencies and not on the usual demand / supply factors affecting precious metals.

Asia overnight saw gold and silver hold steady after the New York closing.   Gold is currently standing at $1,342 very close to yesterday's two Fixes and that after Fixing at $1,345.25 this morning.

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Gold – Very Short-term Gold should continue to consolidate today.

Silver – Very Short-term Silver should continue to consolidate today.

Gold Price Drivers

Gold continues to hold at support levels with 'limit' buyers taking available supplies at these levels.   Please note that Russia bought another 22 tonnes of gold in September.   U.S. investors seem perplexed by gold price moves.   It is more difficult for them because they see only through $ eyes.   This hides so much of what is happening to the gold price.   The prices seen now are the fundamental prices without the influence of an almost daily drama.   Consequently we are not looking for a large correction at the moment.

We do expect more consolidation with moves reflecting moves in the U.S. dollar.   The interest rate move in China, in our opinion, is unlikely to affect the gold price.   One must remember that the Chinese economy is firmly under the control of the government, as are the banks there.   With 40% of income being saved an increase in deposit rates increases income to savers and has no penalizing effect.   The Chinese economy, with over 9% growth is remarkably healthy.   With inflation at 3.6%, it was a healthy move to increase interest rates by 0.25%, even though real interest rates remain negative.   The jump in retail spending by 18% is just what that nation wanted.   It increases their own self-sufficiency and lowers the vulnerability of the nation to global influences.   With the Chinese favoring gold as part of their saving preferences, we expect Chinese retail demand for gold to keep rising.

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Regards,

Julian D.W. Phillips