Gold Supported by Negative Real US Interest Rates

By: Mark_OByrne

Gold closed at $872.20 in New York yesterday and was down $8.30 but silver closed at $17.07 and was up 23 cents. Both have rallied in Asia and in early European trading.

The dollar is flat after yesterday's weakness but oil is up again (another nearly 2%) after yesterday's surge and this is leading to gold buying.

Gold continues to consolidate between $850 and $950 and there appears to be very strong support at the 200 day moving average at $852 especially given the prevailing macroeconomic climate and the ever important supply demand fundamentals (as outlined yesterday).

With Trichet pointing to higher interest rates in the Eurozone in the coming months in order to combat deepening inflation pressures, the dollar is likely to come under further pressure which bodes well for gold. Especially with inflation in the U.S. having increased to at least 4% and yet interest rates remaining near record lows at a hugely expansionary 2%. As we have stated for months, cheap money created the problem and no amount of cheap money will rectify the situation indeed it could make things considerably worse in the form of runaway inflation and stagflation.

It is difficult to fathom how anyone can construe negative real interest rates in the U.S, surging money supplies in the U.S. and internationally and printing presses in full effect globally as in any way gold bearish and shows massive myopia and or bias.

Gold's fundamentals remain as sound as ever and it will continue to outperform the majority of asset classes for the foreseeable future.

Today's Data and Influences
The eurozone economic calendar is light today, with German industrial production data the main feature.

Thus, all eyes today will be on the US non-farm payrolls numbers. The consensus forecast is for a fall on the month of 58,000, though this week's ADP employment numbers and yesterday's weekly jobless claims figures were both better than had been anticipated.

http://quotes.ino.com/chart/?s =FOREX_XAUUSDO&v=d12&w=1&t=l&a =200

Silver
Silver is trading at $17.21/17.25 per ounce (1200 GMT).

PGMs
Platinum is trading at $2046/2050 per ounce (1200 GMT).
Palladium is trading at $432/437 per ounce (1200 GMT). 

By Mark O'Byrne, Executive Director

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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