Gold Close to New Record Highs, Investors On Sidelines Ahead of Bernanke Speech

By: GoldCore

Markets participants are cautious ahead of Ben Bernanke’s speech which is expected to focus on the uncertain outlook for the US economy. Asian stock markets were mixed overnight and European indices are under pressure today. Investors continue to pile into government bonds and German Bund futures rose 14 ticks. The Yen and the British pound are slightly weaker today in tentative trading.

GOLD
Gold has traded sideways in Asian and early European trading after yesterday’s small fall on option expiry day. Gold closed slightly in backwardation yesterday (August contract closed at $1235.4 while September closed at $1234.2) which has rarely happened on the COMEX and suggests that there is increasing tightness in the physical gold market. This would not be surprising considering the small size of the physical market versus the size of the overall financial markets and considering the high demand coming from investors and central banks and from India and China in particular. Gold is currently trading at $1,236/oz and in Euro, GBP, CHF, and JPY terms, gold is trading at €972/oz, £797/oz, CHF 1,264/oz, JPY 104,580/oz respectively.

The recent run of poor economic data is leading to concerns about the GDP figures to be released later today. Bernanke may hint at a further round of quantitative easing or QE2 and this would likely lead to a bid coming into equity markets and the gold market. QE2 which is printing money to buy assets (including government bonds) on a large scale in a near zero interest rate environment will lead to increased concerns of inflation and thus to increased allocations to assets that are a hedge against inflation.

Bloomberg reports that gold demand is set to soar in Vietnam due to economic uncertainty, a stock market slump and a currency devaluation. Governments around the world are seeing weaker currencies in order to try and boost exports and trade their way out of recessions. This is seen in increasing talk of Japanese intervention to weaken the yen. Competitive currency devaluations could be an important factor in leading to higher gold prices in the coming months.

SILVER
Silver is currently trading at $18.95/oz, €14.90/oz and £12.20/oz.

Silver is looking even stronger than gold in the recent price rises. Silver has outperformed gold since Aug. 23, gaining 6 percent compared with gold’s 1.4 percent gain, as investors bought “poor man’s gold” because of its relative cheapness to gold. The gold silver ratio is at 65 which still very favourable to silver and leading to increased buying of silver in India and internationally. Silver remains well below its recent high of nearly $21/oz ($20.77) reached on March 17th, 2008. And less than half of its price in 1980 when it reached $50 per ounce.

PGM’s
Platinum is trading at $1,535/oz and palladium is currently trading at $503/oz. While rhodium is at $2,125/oz.

Today’s News and Commentary
Reuters: Analysis: Financial storm clouds set gold on course for history
Bloomberg: Gold Demand to Soar in Vietnam as `Shelter' From Devaluations, Stock Slump
AFP: Global gold demand powered this year by China, India: WGC
Bloomberg: Iran Imports 23 Tons of Gold in 4 Months, 22 Tons in the Previous Year
Reuters: Gold steady; market quiet as Bernanke speech eyed
Bloomberg: Gold Weakens for Second Day After Advance to Two-Month High Spurs Selling

This update can be found on the GoldCore blog here.

Mark O'Byrne
Director

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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