Gold and Silver's Daily Review for 9th July 2010

"Gold started the day in Asia stronger, recovering back to the $1,200 level, but not pushing though it.   Just before New York opened it Fixed at $1,208.75 where it now stands in New York at the time of writing.

Technically, gold looks soft today despite the rise through $1,200.   Today it will hold above $1,200 and possibly hold this through early next week, but it needs to do a lot of work to hold these levels.   The gold market, like currency markets, does not always follow the rules.   When major investors, with a long-term buying policy, sufficient to take the bulk of gold on offer, are present in the market price patterns change dramatically.   Hence we emphasize the strong support, just below the $1,200 area.   Of course, if those major buyers believe that they can acquire more gold by temporarily removing that support, we would see a price drop, right down to the point where investors of a different breed, enter the market.  

If they can't, they lift their limits to encourage sellers.   With today being Friday, we should see more life to this market than yesterday.   We give precise price forecasts in our newsletter to Subscribers.  Subscribe through or].

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Silver – Very Short-term

Silver looks vulnerable at $17.93, but will go where gold goes.   Currently it is up.   If it holds above $18.00 it may break resistance.

We will be addressing the issue of "Is Silver de-coupling from gold" shortly, in the Silver Forecaster newsletter.

Gold Price Drivers

After a day of reassurances from the I.M.F. and M. Claude Trichet of the E.C.B., gold softened, but not by that much.   No fundamentals were changed, simply a positive spin put on the global scene.   Today that perspective should be replaced by some harder facts, such as; the Governor of the Bank of Japan, Masaaki Shirakawa, pointed to an increase in global financial market instability linked to worries over sovereign risk.   Elevated sovereign risks were triggering financial instability and will do so for some time to come.   The European Central Bank will publish the results of the stress tests on 23 July but don't expect bad news from them!  The risks will not be lowered because of this report.   Banking is so intertwined worldwide the Eurozone crisis will be the world's crisis after that.

We are not being told who the commercial banks that swapped 382 tonnes of gold with the B.I.S. are or which central banks they represented [please note that you have to own gold that you swap].   It is pretty clear that it was a very distressed central bank that did it.   Having to raise currency liquidity with gold as collateral is a classic use of gold as a reserve asset and highlights why central banks have stopped selling, keep holding and even buying gold.

To give proportion to Chinese demand the total volume of gold traded on the Shanghai Gold Exchange increased 59% in the first half of the year compared to the first half of 2009 to the equivalent of 3,174.5 tonnes.


Julian D.W. Phillips