Gold and Silver's Daily Review for 8th October 2010
Gold was fixed at #1,330.5 down $29 on yesterday morning. $1,359.50 a 2% drop and the dollar has recovered to $1.39.02 from $1,3971 against the euro a half a percentage drop. It was in New York that the fall occurred. In Europe gold dropped €12 a 1.75% drop. The fall in the gold price in both currencies looks overdone.
U.S. investors only look at the dollar price of gold and are finding it hard to see gold in any other currency. That's why it looked ripe for a pullback. Speculators and other traders are selling, but a look at the gold E.T.F.s shows that long-term investors are neither buying nor selling gold.
Both U.S. investors buying gold outside the U.S. and Asian buyers are looking for gold in volumes, not as a trade. They pick up stock when it is available, without chasing prices. A pullback for them is great as it provides the volume of gold they want.
The run up to $1.360 we saw as coming from short position holders being forced to cover and those buyers who expected gold to go parabolic. It was reasonable that there should be a pullback. When the volumes of gold coming from the U.S. sellers are absorbed then new buyers will have to pay up to get gold. With gold falling more than the dollar recovered U.S. buyers may well find that they are the ones who have to pay up to get back in?
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 pulled back, but in percentage terms, this was not a heavy fall. So long as volumes of gold are coming onto the market gold prices will consolidate. Employment figures and further falls in the dollar may prompt U.S. buying. We expect either more falls or a consolidation day in the States for gold.
Silver – Very Short-term
Silver was Fixed at $23.38 yesterday and was Fixed at $22.37. We expect silver will have a day of consolidation unless the dollar begins to tumble again.
Gold Price Drivers
Today we see gold taking a breather and showing a day of consolidation. But the reasons it has risen on this current run from $1,170 to $1,360 still persist and will not be resolved any time soon.
The G-20 and I.M.F. meetings this weekend may attempt to calm markets, but we do not expect any measures that will rectify the unstable foreign exchanges. We may have to digest the usual important but ineffective announcements. Next week will then see markets reflect their inability to handle global matters effectively and confidence will fall again.
With Sovereign debt, Fiscal, deflationary crises sitting firmly in front of governments today, a global currency crisis has to become dire enough to take government's attention away from these other problems. Expect the currency chaos to increase! Gold's rise is not over.
Julian D.W. Phillips