Gold and Silver's Daily Review for 4th October 2010
On Friday in London, the afternoon Fix [set after New York had opened] was Fixed at $1,316.25. After that it did hit $1,320. In both Asia and London the gold price slid back to $1,316, where it Fixed in London.
The jump to $1,320 appears to have been a squeeze on investors holding short positions there. We do expect to see more of that at these levels and if the gold price continues to rise. After all just how much punishment can a 'short' investor take?
A new facet of the battle of exchange rates has appeared this morning as China promises to buy Greek bonds when they come up for sale. This is a political move as China gains friends in the Southern part of the Eurozone. Will they do the same for Spain and Portugal? We think so. Maybe Ireland as well? From a strategy point of view it is also a good move as they diversify out of U.S. dollars into the Euro and high yielding national bonds there. Taking more national reserves away from the U.S. dollar will also protect the value of those reserves, but it is a downward pressure on the U.S. dollar. The less U.S. dollars China holds the stronger its arm is against aggressive action in the U.S. and the less vulnerability those reserves have against a weakening dollar. Most importantly, a huge amount of dollars can be dumped this way.
In the next issue of our newsletters we will post articles [Subscribers can access our archives] on "What's driving gold investment, Prudence or Profits?" and "Have Central Banks lost control of the Gold market?" These may not be posted on public websites, so subscribe to make sure you get them.
Gold – Very Short-term
While demand above $1,300 remains strong, there are sellers at this level. As this selling is taken off the market by large buyers, there is no need to raise prices. We expect a relatively quiet and steady in New York.
Silver – Very Short-term
Silver opened this morning at $22. London Fixed at $22.03. We expect silver will have a consolidating day in the States.
Gold Price Drivers
We suggest you keep your eyes fixed on what China is doing both with its reserves and with the Yuan. Their present positioning appears to be laying the ground for some turbulent times ahead. The Chinese government is focused on the policy of diversifying away from the U.S. dollar into other currencies and international assts. This policy will continue relentlessly until the number of U.S. dollars in their coffers is commensurate with their trade with the U.S. and in the U.S. dollar. Investing in the distressed nations in the Eurozone is both good investment management and effective politics as we said above. But it is only part of a wider campaign to become resilient in international trade and international capital investments. We believe that this will precede considerable turbulence in currency markets which will benefit the gold price over the longer term. The net result will be that eventually support for the U.S. dollar will weaken considerably both as the currency of international trade and investment and as the world's sole reserve currency. It still has a long way to fall.
Julian D.W. Phillips