Gold and Silver's Daily Review for 22nd July 2010

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"When Fed Chairman, Mr. Ben S. Bernanke used the words, "unusually uncertain" to describe the U.S. economic outlook, markets were surprised.  

As this sunk in it was realized that the dreaded 'double-dip; recession is now entirely possible.  All markets will be unusually sensitive to economic statistics from now on.

The gold market was expected to tumble quickly after the news as de-leveraging commenced, particularly as the Technicals are pointing down now.   So far neither Asia, nor London has slammed the gold price.   The morning Fix in London was at $1,187.00 and €927.54 a lot firmer than expected.  After the Fix the gold price rose $1.  So both Asia and London have remained confident that the gold price will not tumble.   We now wait to hear New York's opinion.

Gold – Very Short-term

At best we believe that gold will hold present levels, just below $1,200.   This is because the Technical picture indicates a weaker bias for the day.   We repeat a point we made earlier in the week; the gold price is not dependent on the state of the U.S. economy.   It may respond to Mr. Bernanke's comments in the short-term, but will continue to follow the trend dominated by the fundamentals.   These remain positive for gold.

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Silver – Very Short-term

The silver price was not shaken by the news on the U.S. economy despite its dependence on industrial demand to a large extent.  This is positive for silver.   Of course silver is a globally used metal and with China's growth so strong we should accept the I.M.F. figure of 4.6% for 2010 as applying to silver overall.

The silver Fix was only 6 cents down today at $17.82 then traded up at $18.10 as New York opened.

Gold Price Drivers

The words "unusually uncertain' resonate through all markets and will take some digestion.   As they are digested and as economic activity describes just what this means, we expect a measure of de-leveraging in ALL markets as prudence demands such action.   But second time around, reactions are quicker and muted.   While some analysts feel that gold will trade in the current area for the rest of the year, we disagree.   We look beyond both shores of the Atlantic and see many fundamentals that are, in themselves driving forces behind the gold price.   As the summer winds down these influences will come into their own and show how the gold market, really is a global market.

A look at today's markets tell us that the market has discounted bad news and that de-leveraging may well be light.

Regards,

Julian D.W. Phillips