Commodity Markets Analysis - Gold Demand Continues to Rise

By: Gold_Investments

Gold
Spot gold was trading at $672.20/672.70 an ounce as of 1215 GMT.

Gold has traded sideways in Asian and European trading after last week's strong performance with gold rallying to a 3 week high. Gold again showed its safe haven qualities in August and was up 1.3% for the month after being up 2% in July.

Gold is looking healthy and strong but needs to rise above the resistance at $675. Since the start of August it is in a tight range between $648 to $675 and gold needs to convincingly breach the $675 mark prior to challenging $700 in the coming weeks.

It is important to focus on the big picture and long term prices and thus inter day and intra day movements are of less significance than weekly and monthly and yearly performance and closing prices. Gold's close last Friday was the third highest monthly close for gold ever. This is especially bullish as it was achieved in gold's traditionally weaker summer seasonal period. Thus, the autumn months should lead to higher gold prices especially considering the continuing very strong fundamentals.

Global gold demand continues to confound the bears with world demand for gold rising about three per cent to 822 tonnes in the first quarter of 2007 from the same period last year and by more than 19 per cent to 922 tonnes in the April-June period, according to the World Gold Council.

According to global jewlery industry analysts, China's jewelry industry alone totaled $18 billion last year, up 35% from 2001. It is the third largest consumption item among Chinese, after automobiles and housing. By 2010, the country is expected to have the biggest jewelry market in the world.

According to the weekly Bloomberg survey of gold analysts, investors and analysts are in favour of buying gold because of “mounting losses from U.S. sub-prime mortgages” and it represents “a haven from more risky financial assets”. Some 75 per cent of those surveyed advised buying gold.

Trade is likely to be thin today with the U.S. out for Labour Day holidays.

Silver
Spot silver is trading at $12.08/12.10 an ounce (1215 GMT).

PGMs
Platinum was trading at $1266/1272 (1215 GMT).
Spot palladium was trading at $330/334 an ounce (1215 GMT).

Forex and Gold
Nervousness continues and events on global credit and stock markets are likely to continue to set the overall tone again this week. The Nikkei and Strait Times in Singapore were down overnight (while most stock markets in Asia were up) and European stock markets started up but have deteriorated somewhat in the course of the morning. With a host of key U.S. data due for release, traders could start to focus more on the economy and the potential damage that the credit crisis may have caused.

Bernanke's comments on Friday, reassuring markets that the Federal Reserve was prepared to take all necessary steps to protect the economy from market volatility, haven't really inspired markets with the dollar near a three week low against a basket of major currencies. U.S. data later this week includes manufacturing activity in August on Tuesday, the Fed's beige book summary of the economy's performance on Wednesday and the monthly jobs report on Friday. From the UK BRC retail sales are due tomorrow, consumer confidence data on Wednesday, Industrial and Manufacturing production on Thursday and finally house price data on Friday. With recent market volatility in mind, economic fundamentals will become more and more important as investors seek a reduction in risk.

Europe will also be in the limelight this week, with the ECB meeting on Thursday amid much uncertainty regarding the outcome of its discussions. Last week's comments from Trichet left the door open to a pause in the tightening cycle. If this does prove to be the case, the ECB is likely to signal at the press conference that it remains vigilant on inflation and that a rate hike has just been postponed. Thus, the impact on the euro should be limited.

In the UK, the BoE is also expected to leave rates on hold. Rates may be increased to 6.00% but a move is more likely to come later in the year. Data of note for release over the week include August's manufacturing and services CIPS, as well as the BRC retail sales survey.

Oil
Crude oil traded near a four-week high in New York as a Hurricane Felix continued on its path toward the Gulf of Mexico, home to more than a quarter of U.S. oil output. Felix is now a Category 5 hurricane, the strongest on the Saffir-Simpson scale of intensity. At 1200 GMT, London's benchmark Brent crude contracts for October delivery were up to 73.43 USD per barrel. New York crude contracts for October delivery were up 28 cents at 74.33 USD per barrel in electronic trades.

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