Gold and Silver's Daily Review for 6th October 2010
Highlighting how investors can miss the perspective of the market the gold price rose $35+ yesterday, sparking the perception that gold was shooting up. In Europe gold rose €2 to €968. When gold was $1,305 it was €960 in Europe.
Today it stands at $1,349 and in the Euro at €973. It was Fixed in London at $1,347 yet another record. As you can see this is mainly about the fall of the dollar not the rise of the gold price in other currencies. Gold is acting as a measure of value.
What is more is that the Euro price of gold illustrates the steady rise of the metal in all currencies. It is steady and relentless rise, but not nearly as meteoric as the dollar price of gold would imply. The chart of gold in the Euro paints a clearer picture.
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 or may not be posted on public websites, so subscribe to make sure you get them.
Gold – Very Short-term
Gold will continue to rise steadily in the Euro, today. It may well rise much faster in the U.S. dollar as it falls around the world. We again expect a boisterous day in New York.
Silver – Very Short-term
Silver traded at $23.05 in London after Asia took it there. London Fixed at $22.92. We expect silver will have another boisterous day in the States and elsewhere.
Gold Price Drivers
We are amazed at how many commentators look at the gold price in terms of the dollar and see it as rising meteorically. They are ignoring the fall in the dollar. The gold price is rising slowly in the strong currencies of the world. Only in the weak currencies is it running. What does that tell you about the dollar?
Even after the Bank of Japan's announcement the Yen has not weakened against the U.S. dollar. What does that tell you about the U.S. dollar and the Yen?
How long can nations rely on, argue about, manipulate exchange rates until they take measure to limit the damage currency moves are having on trade. This issue won't go away and at the moment appears beyond the main global currency nations to address properly, let alone resolve. It will get very messy unless resolved. While the argument continues gold will benefit.
A basket of currencies would measure which currencies are strong and which are weak, but international trade must move to the currency of their main trading partner. China is trying to walk with Europe and not with the U.S. it seems. This leaves the U.S. dollar with a long way to fall. This is gold-positive.
China supports a stable euro and will not reduce the holdings of European bonds in its foreign exchange portfolio. It has bought Spanish government bonds and will buy Greek government bonds in the future. The move towards Europe on the monetary reform front we see as another step away from the U.S. dollar. Any reformation of the monetary system it agrees with Europe will leave room for the dollar to fall and for its role as the global reserve currency to diminish, a very gold positive move. This will be a long-term objective.
Julian D.W. Phillips