Gold Strong on Deepening Credit Crunch
Commodities / Gold & Silver Feb 15, 2008 - 08:48 AM GMTBy: Mark_OByrne
Gold was up 60 cents to $907.60 per ounce in trading in New York yesterday and silver was down 10 cents to $17.22 per ounce. Gold has traded sideways to slightly up in Asia and early trading in Europe.
Gold rose in British pounds and fell in Euros. The London AM Fix at 1030 GMT this morning was at $909.75 (down from $910.85). Gold fixed at £463.97 (up from £462.31) and €619.76 (down from €623.19 ).
With the dollar and oil flat, gold will likely take its cue from the data being released today. If the Empire State index, industrial production, Michigan sentiment and December TICs capital inflows data is poor gold should remain strong above $900 per ounce.
| 15-Feb-08 | Last | 1 Month | YTD | 1 Year | 5 Year | ||
| Gold $ | 909.70 | 1.96% |
9.16% |
36.12% |
158.96% |
||
| Silver | 17.35 | 8.84% |
17.46% |
24.01% |
283.00% |
||
| Oil | 95.86 | 4.61% |
-3.33% |
65.50% |
160.49% |
||
| FTSE | 5,879 | -2.44% |
-8.64% |
-8.62% |
62.75% |
||
| Nikkei | 13,623 | -2.50% |
-11.00% |
-23.88% |
56.54% |
||
| S&P 500 | 1,349 | -2.32% |
-8.13% |
-7.41% |
61.56% |
||
| ISEQ | 6,525 | 0.70% |
-5.91% |
-34.31% |
#N/A |
||
| EUR/USD | 1.4679 | -0.81% |
0.64% |
11.77% |
36.03% |
||
| © 2008 GoldandSilverInvestments.com | |||||||
The property and credit crunch is clearly deepening and with Ben Bernanke yesterday signaling his willingness to continue cutting interest rates to tackle the US economic slowdown, gold will likely continue to outperform other assets.
Gold has consolidated nicely in the $850 to $935 range. Strong support is now seen at $860 and even $900 looks well supported. Any close on a daily basis above $935 should see us challenge $1,000 per ounce in a matter of weeks.
FX
Bernanke's testimony yesterday saw a return to negative sentiment towards the US Dollar as the Greenback lost ground against Sterling and the Euro. Meanwhile the Euro managed to pare recent losses against the British Pound. Most eyes will be on the US data releases this afternoon including the Empire State Index, Michigan Sentiment and the TIC's data. We could see these economic indicators triggering a retest of recent highs in the Euro.
Risk appetite saw traders bidding up the major currencies against the Yen, as the Euro, Sterling and the Dollar all rose to the top of the recent respective ranges. As the BOJ as expected, left rates unchanged over night they gave little or no short term support to their currency. They did note however that they would be vigilant in the face of building inflationary pressures.
Commodity currencies again proved strong in trading yesterday as commodities stayed strong across the board.
Gold's Performance as a Safe Haven Asset
An example of gold's historic role as a safe haven asset is seen in the following data. The industry performance of Physical Gold Versus the S&P 500 during eleven stock market declines of 15% or more in the Post-War period (since 1946).
| Correction Date | S & P 500 |
Physical Gold |
Gold Mining Shares |
| May 46 - May 47 | -23 |
0 |
-28 |
| June 48 - June 49 | -17 |
0 |
+3 |
| July 57 - Oct 57 | -15 |
0 |
-18 |
| Dec 61 - June 62 | -22 |
0 |
-3 |
| Feb 66 - Oct 66 | -17 |
0 |
-10 |
| Nov 68 - May 70 | -28 |
+4.11 |
-35 |
| Jan 73 - Oct 74 | -41 |
+142.87 |
+144 |
| Sept 76 - Mar 78 | -16 |
+60.72 |
+43 |
| Nov 80 - Aug 82 | -19 |
-34.58 |
-60 |
| Aug 87 - Dec 87 |
-27 |
+7.90 |
-22 |
| July 90 - Oct 90 | -15 |
+2.54 |
-8 |
| Source: Sam Stovall, Chief Investment Strategist at Standard & Poor's, featured in 'The Bear Book - Survive and Profit in Ferocious Markets' by John Rothchild. Note: Gold price was "fixed" and the US dollar was backed by gold during the first few episodes, hence physical gold was cash and registered no gains and no losses. Gold and Silver Investments Ltd - www.goldassets.co.uk |
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Support and Resistance
Support is now at $886 which was the low last Tuesday on February 5th. Next support is at the monthly low on January 21 st of $861. Strong support is at $850 to $860. There appears to be strong physical demand internationally for gold in the $890's and thus gold is unlikely to fall far below $890 except for a short period of time.
Silver
Silver is trading at $17.40/44 at 1200GMT.
PGMs
Platinum continues to reach new record highs above $2,000 and is trading at $2035/2045 (1200GMT).
As noted yesterday this is far from a bubble as speculative longs remain quite low and far away from higher levels expected at a market top.
Besides the obvious bullishness due to the declining supply because of the monumental issues confronting the mining and other industries in South Africa due to a lack of a secure and adequate power supply there are many other fundamental supply and demand issues to suggest that platinum will go a lot higher in the coming months as we pointed out in January. http://www.moneyweek.com/file /40649/why-you-should-invest -in-platinum-this-year.html
Palladium has remained firmer and is trading at $435/441 an ounce (1200GMT).
Platinum is up some 33% in just one month. A similar surge in gold and silver is likely to be witnessed in the coming weeks. The ratio between platinum and gold was roughly between 1:1 and 1:0.8 throughout the 1970's, 1980s and 1990's and it is likely that this ratio will be reverted to in the coming months as gold plays catch up with platinum.
By Mark O'Byrne, Executive Director
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