Gold and Silver's Daily Review for 27th July 2010
Gold was 'Fixed' this morning in London at $1,184 after yesterday afternoon's $1,183.50. The gold price tried to move away from these numbers with no success, telling us that the physical market in London is where the action is. Clearly, the heavy institutional buyers dominate and set their price limits.
The technical picture appears to give some direction to other buyers and sellers, but the institutions are setting their own direction and prices. They will of course, seek to get the same amount of gold for a lower price.
The statement last Friday of the People's Bank of China [the central bank] that China should use a 'basket of currencies" as the basis for their Yuan exchange rate is something we have been forecasting for well over a year now. To include the currencies of their main trading partners brings this valuation pragmatism that is needed in this world of troubled currencies. It is also a key step in the internationalization of the Yuan, which we also forecast some time ago.
If his recommendation is accepted, then the U.S. Dollar will diminish in importance as the sole reserve currency. This is one of the factors that set the scene for the future price of gold. It is very gold-positive.
Gold – Very Short-term
The gold price is being held up by Asian and institutional demand, but with a weaker bias today as well. Even small sales are pushing the market down with New York pressing prices down at the opening. The market is vulnerable to falls, but not as far as many believe.
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Silver – Very Short-term
Today silver was holding up well, until New York opened, after which it broke down through the $18.00 level and tumbled to $17.94. We do think that it will continue to track gold, thus limiting the downside, today.
Silver was 'Fixed' at $18.16 after which New York took control.
Gold Price Drivers
Again investment demand remains strong at the Fixes in London and the Fix is dictating the gold price's trading range during the day.
We believe that the monetary role of gold is misunderstood as far as a price influence is concerned. If one were to take that demand away you may well see lower prices. However, such demand discounts the future need for gold in the monetary system. Until analysts factor in this role for gold, forecasts will miss a key ingredient. To factor in this aspect one has to look ahead one, two and more years. After all, institutional demand places the future squarely in their sights, not the present.
Julian D.W. Phillips