World Demand Fuels Precious Metals Rally

Monday, April 12, 2010—Despite the continued U.S. dollar’s strength, it has become very evident the gold market has gained mass appeal for investors worldwide, especially in light of the ongoing European debt crisis. The debt crisis continues to be the engine driving the global economy, and it has investors heading to gold as a financial flight to safer havens.


The main problem is the conflicting stories coming out of the European Union. We had thought that the European Union leaders had worked out a plan (last month) in conjunction with the International Monetary Union to help Greece’s debt, which is the largest deficit of all the countries that use the euro.

However, on April 6 Market News International reported, “Greece is averse to the International Monetary Fund’s involvement in the bailout.” Speculation was that the bailout plan for Greece was about to unravel. Greek banks took a hit, with the country’s second largest lender, EFG Eurobank Ergasias SA, fell 9 percent on the STOXX 600.

And on Thursday, European Central Bank President Jean-Claude Trichet announced “Greece is not in danger of defaulting but must pursue its debt-cutting measures rigorously.”

These day-to-day contradictions are giving investors little confidence in the euro. Especially since there are several other euro states with debt crises of their own, including Portugal, Spain, Ireland and Italy. Reuters reports, “The Eurosystem’s reserves of gold and gold receivables increased 19.8 billion euros. This is proof positive the European Union is lacking confidence in its currency and turning to hard assets.”


On Friday April 2, the U.S. Labor Department announced the addition of 160,000 new jobs for Americans. There were projections of 190,000, but all in all this is great news.

However, April 8’s jobless claims data showed an increase of 18,000 new applicants for jobless benefits, raising the total to 460,000. Federal Reserve Chairman Ben Bernanke announced that “joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy.”


Recently, the (WGC) World Gold Council announced that China’s gold production would run out in six years. China is the world’s largest producer of the metal. The country enjoys its status as the world’s fastest growing economy with an ever growing middle class.

The citizens of China are being educated by its government to protect their newfound wealth by investing in hard assets as a hedge against inflation. These hard assets include gold, silver and diamonds China has become the world’s second largest consumer of diamonds behind only the United States.

It is evident that China has realized that capitalism works. It has even been reported that the Chinese gold supply cannot keep up with the overwhelming demand.


With the wedding season in India in full swing, the higher prices have slowed down the insatiable demand, at least temporarily. The jewelers of India have been buying every price dip, especially around the $1,100.00 level. With 1 million weddings projected during the months of April and May, demand is there but patience may yield better prices.

One of the most auspicious festivals for gold and silver buying falls on the May 16: Akshaya Tritya, a Hindu Holy Day. Starting a new activity or buying valuables on this day is considered to bring good luck and success. Many buy gold and silver jewelry on this day, and the giving of gifts on this day is considered inexhaustible. As I have often stated, 12 percent of all refined gold in the world is thought to be in the households of India.


The Bank of Japan left its interest rates unchanged at 0.1 percent and the Bank of England kept its interest rate at 0.5 percent. The European Central Bank kept its interest rates at 1 percent. On the other hand, The Reserve Bank of Australia raised its interest rates to 4.25 percent


As you can see, global economics and demand have fueled this rally. The rally has blown through what were considered very solid resistance levels ($1,130.00, $1,140,00 and $1,150) like a hot knife through butter. However, analysts are split about what this means, with some saying the market is overbought and others saying it’s on its way to new highs.

We’ll have to wait and let the market dictate—after all, the market is ALWAYS right.

Mike Daly / PFG BEST

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