Gold rose 2% yesterday and reached as high as $1,128/oz overnight and has steadied near these levels since. Gold is currently trading at $1,125.00/oz and in euro and GBP terms, gold is trading at €780/oz and £702/oz respectively.

Data showing a rebound in manufacturing was greeted positively by both the equity and commodity markets (the S&P 500 rose 1.6%) and New Year optimism saw all markets rise. The weaker dollar and oil prices over $80 a barrel contributed to gold's strength. Start of year asset allocation by funds likely also contributed to strength in the precious metal markets.

The continuation of quantitative easing and continuing record low interest rates in the US is likely to see the dollar remain under pressure (with some periods of strength and counter trend rallies) and this will likely lead to another positive year for gold. Concerns about the deteriorating public finances and government borrowing in many industrial nations could see government bond markets come under pressure and interest rates rise (as happened in the 1970s - see chart below) and this would also lead to further diversification into gold.

Silver
Silver rose 3.5% and rose to a high of $17.73/oz overnight. Silver is currently trading at $17.66/oz, €12.22/oz and £10.99/oz.

Platinum Group Metals
Platinum and palladium surged yesterday on increasing confidence in global economic growth and anticipation of the new platinum and palladium ETFs (ETF Securities has reported the first buyer of its platinum and palladium ETFs) which are expected to see significant investment appetite.

Platinum is trading at $1,527/oz and palladium is currently trading at $426/oz. Rhodium is at $2,650/oz.

Palladium has surged by over 3.5% and platinum by over 2% on an increasingly favourable view for commodity prices for 2010. The launch of the platinum and palladium US ETFs will likely lead to a substantial increase in investor demand which should lead to higher prices as it did for the US gold and silver ETFs.

The Bullion Services Team

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