Gold and Silver's Daily Review for 7th October 2010

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Gold was fixed at $1,359.50 and the dollar has slipped to $1,3971.   In the euro gold is barely changed after Fixing at €973.017.   It was not so long ago that the dollar fell to $1.50 and it looks like heading that way again.  


With the Bank of England and the European Central Bank holding interest rates and pressure on to continue to print more money, it is little wonder that gold is making record highs [but only in the U.S. dollar].

A major test of the G-20 and the I.M.F. is facing them this weekend as they discuss exchange rates, intervention and 'pegged' rates.   They will try to resolve the currency disruptions facing foreign exchanges now.   If they do manage to achieve a global consensus it will be a first for them.   G-20 meetings have a history of indecision and it must be remembered that the U.S. with 16.73% of the I.M.F. votes, which needs 85% of votes before any decision can be made by that body.   Perhaps we should not hold our breath for some strong moves?   If there is no strong move to reform the currency world, the dollar will continue to fall.   Their demand for China to let its currency rise while their own currency is tumbling muddies the moral waters on this issue.

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 continues to make new highs.   The present run started at $1,170, so investors have to look deeply into why, before they conclude it is going to fall.   We expect another positive day in the States for gold, while the dollar continues to fall.

Silver – Very Short-term

Silver was Fixed at $23.38 and is trading just below that now.   We expect silver will have another strong day in the States and elsewhere.

Gold Price Drivers

Again we have to emphasize that gold is not rising in the euro.   The dollar rise in the gold price is almost entirely due to the falling dollar.   We are not witnessing a currency 'war'.   A war implies aggressive acts against others.   Currencies are involved in purely defensive measures attempting to protect their own international trade.   The currency system has no 'rules' and 'regulations' to govern exchange rates.   They have no body capable of enforcing them either.   All they can hope for is that after they have catered for their own national interests they can find some accord to stabilize currencies.   Unfortunately, national interests leave little room for such an accord.   Gold's rise reflects the situation as it counters the fall in the dollar.

We would like to point out that in 2011 the I.M.F. has to review the constitution of the Special Drawing Rights, the currency invested by the I.M.F., which could be used if nations find consensus on a "basket of currencies" approach to currency values.   So these issues will not go away and while they disrupt the currency world gold will benefit.

Regards,

Julian D.W. Phillips