Gold and Silver's Daily Review for 29th July 2010
Gold was 'Fixed' this morning in London at $1,166 steadying after yesterday's fall. Physical demand is holding the price up. All markets are currently looking for a clear direction. Until this is found we expect gold prices to consolidate. New York traders are again trying to take the gold price down to below $1,160, which is within the trading range we expect in this consolidation period.
The U.S. Dollar continues to fall against the major currencies of the world [Yen, Euro and Sterling] with, for example, the Euro at nearly $1.31. Until the Eurozone stumbles into its next Sovereign Debt crisis, there is no reason for the Dollar to strengthen. Interest rates are going to stay at current levels likely into 2012. This is a boon for the "carry trade", who are happily borrowing only to deposit such loans into emerging nations with high interest rates. This is one of many reasons why the Dollar should continue to fall.
Gold – Very Short-term
Gold has hit support and is trying to hold the $1,160 area. It has to potential to fall further today, but will attempt to consolidate.
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Silver – Very Short-term
Silver bounced off support and stands 20 cents higher at $17.67 after New York opened. As with gold, we do expect a period of consolidation, but perhaps after falling lower still. We do expect to see the weaker bias in silver continue.
Silver was 'Fixed' at $17.60 only 3 cents down on yesterday's Fix.
Gold Price Drivers
While it may just be California being California, their 22% budget shortfall is alarming and reminds us that forty-eight U.S. states will be in deficit this year and the combined shortfall will probably exceed $300 billion. That puts Greece's expected 2010 budget shortfall of around $28 billion into perspective. Indeed Greece's shortfall is put at around 13.6% of GDP, whereas there are a good number of U.S. states anticipating deficits of more than 20% this year – including some, like New York, Florida and Illinois, with far bigger economies than Greece.
Of course the Fed will step in to bail out those who really look like going bankrupt, but that misses the point entirely. We know that the United States will continue United, but unless financial profligacy is structurally reined in, the U.S. Dollar will lose foreign confidence.
The U.S. is heavily dependent on foreign investors now. These are already warning central banks to invest only in U.S. Treasuries, because of the risks. So what is the future of the U.S. Dollar? Let's leave it at this, the situation is gold positive!
Julian D.W. Phillips