Metals Strong on Supply Demand Fundementals

By: Gold_Investments

Gold was up $1.50 to $794.50 per ounce in New York yesterday and silver was unchanged at $13.81 per ounce. Gold was flat in Asia but has since rallied in Europe and the London AM Fix was at $796.25.

At the London AM Fix gold was trading at £395.67 GBP (marginally up from yesterday's London AM Fix at £395.38) and €553.53 EUR (up from yesterday's London AM Fix at €549.53 ). Gold has remained flat in sterling and actually increased in euros. The recent record highs for gold at the London AM Fix on the 7th of November were $841.75, £400.47 and €573.55. At the start of the year we predicted gold would reach $850 and close the year at around $800. We remain confident that the recent non inflation adjusted highs would be surpassed early in 2008 given the extremely strong fundamentals.

Interestingly and of relevance is the fact that the other precious metal - platinum - hit new record highs this morning at $1510. While platinum is not a monetary metal like gold it does have similar tight supply demand fundamentals. The forwards have tightened and there are real and ongoing supply concerns from Russia and South Africa. The market looks very strong with supply worries, strong jewellery demand particularly from Asia, industrial demand for catalytic converters and increasing investment demand in the form of the platinum ETF. Platinum holdings in the ETF Securities fund jumped 3,200/ozs yesterday to a record 116,160/oz. There are real worries that Russia may not renew its export licenses.

Gold bounced strongly off support at $786 yesterday and $786 and support at $776 look like strong support with good physical demand at these levels. Gold may trade in a range between $786 and $815 prior to a likely decisive break out to the upside early in the New Year. Gold was strong over the Christmas period last year and may be again. Last year it was strong at Christmas, sold off early in the New Year and then rallied from mid January until early March.

The credit crisis looks set to evolve from a serious liquidity crisis to an even more serious solvency crisis. If the solvency of major banks becomes an issue as seems increasingly likely then gold's safe haven credentials will really come into their own. The FT reports that emergency help for financial markets entered new territory on Monday night as the European Central Bank announced that it would on Tuesday offer unlimited funds at below-market interest rates in a special operation to head off a year-end liquidity crisis. The surprise move, which follows last week's co-ordinated barrage of measures by the world's central banks to increase market liquidity, suggests the ECB is still frustrated at the failure to ease market tensions.

Gordon Brown is to host a 'credit squeeze summit' in London with the leaders of Germany and France in order to try and address global "financial turbulence". Gordon Brown has said he wants a "better early warning system" for the global economy.Another case of closing the door after the horse has bolted.

Silver
Silver is trading at $14.00/14.02 at 1200 GMT after yesterday's sideways movement. Silver remains the most undervalued of all the precious metals and will likely outperform all other commodities in the coming year and years. It remains the investment opportunity of a lifetime and the non inflation adjusted high of $50 per ounce will almost definitely be seen by 2012.

PGMs
Platinum was trading at $1505/1510 as per above (1200 GMT).
Spot palladium was trading at $356/361 an ounce (1200 GMT).

Oil
Oil remains at elevated levels above $90 per barrel and was trading at over $91.60 a barrel.

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