Gold and Silver's Daily Review for 29th November 2010

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The euro today is again visibly weakening at $1.3170 which implies that the Irish bailout is not to be believed.   We see the market as accepting this package, but that the Eurozone problems are not out of the way.   We see gold rising for a many reasons, not limited to the Eurozone problems.  Gold Fixed at $1,360 this morning in London, a $5 level better than the Fix on Friday afternoon.

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Gold – Very Short-term

Gold is holding despite the fall of the euro.   Again we don't see too much movement down today, but we reiterate that this could be the 'quiet before a storm'.   Prices will continue to revolve around the London Fixes with a neutral bias today.

Silver – Very Short-term

Silver is holding just below the London Fix at $26.74 and looks relatively steady today.   Consolidation will again be today's play, but there's a storm brewing!   Prices are not expected to move that much and should remain neutral to positive.

Gold Price Drivers

At first glance you may well say that the bailout of the Irish has not convinced the markets, which is why the euro is falling.   It doesn't look like that to us, because the dollar is rising against most currencies, telling us that money is flowing back to the U.S. dollar.   Why, you may well ask, should the dollar look attractive this morning?   It certainly isn't because of attractive economic fundamentals of the U.S. as most economists would like to see.   We see the currency world like a tree with the U.S. dollar the trunk of that tree.   When there are global economic uncertainty, tensions and instability [together with the prospect that emerging currencies may not continue rising] those who borrow to invest in emerging currencies will take profits and return the borrowed money to their dollar based lenders.   This will give the false impression of dollar strength.   The initial impact on the precious metals of this is a retreat in their prices too, but for the wrong reasons.

Falling confidence in the currency system is certainly driving the large investors including central banks into gold.

Regards,

Julian D.W. Phillips