Commodity Markets Analysis - Gold To Break $700 As Sept 11th Anniversary Nears

By: Gold_Investments

Spot gold was trading at $697.50/698.00 an ounce as of 1215 GMT.

Gold has continued to show strength in Asian and European trading and remains near 16 month highs. Besides a weak dollar and near record oil prices, gold was also bolstered by a resumption of geopolitical tension in the Middle East, with Syria accusing Israel of bombing its territory. With the 6 year anniversary of September 11 atrocity next Tuesday and Osama Bin Laden again in the news, risk aversion and safe haven buying is contributing to gold's strength. This is seen in strong inflows into gold ETFs and we have experienced a strong pick up in sales of both physical bullion and Perth Mint gold certificates.

While there may be some profit taking it seems likely the psychological $700 mark will be passed in the near term prior to challenging the 27 year highs of $722 that was reached in May 2005. We continue to believe there is a good chance gold will challenge its record high price in 1980 of $850 before the end of 2007.

All eyes are on the U.S. non farm payrolls for August and there are concerns that the figure could be to the downside showing that problems in financial markets are now spreading from Wall Street to "Main Street" and the wider U.S. economy.

Silver
Spot silver is trading at $12.57/12.59 an ounce (1215 GMT).

PGMs
Platinum was trading at $1288/1292 (1215 GMT).
Spot palladium was trading at $332/338 an ounce (1215 GMT).

Forex and Gold
The euro remained strong against the USD despite the ECB deciding to leave interest rates unchanged at 4%. Trichet said that ECB monetary policy was still on the “accommodative” side but the words “strong vigilance” were conspicuous by their absence. These words usually serve as a precursor to an interest rate hike the following month and the fact they were not mentioned in the official statement has led many people to believe that the ECB will once again leave rates on hold at the October meeting.

Traders are holding their breath ahead of this afternoon's release of the key non-farm payrolls report for August. In terms of yesterday's numbers, markets in particular focused on the sharp fall (from 51.7 to 47.9) in the employment component of the services ISM. Consensus forecasts are showing an increase of 110,000 in the official payroll data but following the weak ADP report on Wednesday's and yesterday's numbers the risks to this forecast would now seem to be to the downside.

The credit crunch has not gone away and risk aversion remains the order of the day.

Oil
Oil prices continue their quiet and steady rise towards the all time record high of 78.77 USD reached on Aug 1.

At 1000 GMT , London's benchmark Brent for October delivery were down 29 cents at 74.48 USD per barrel. New York crude contracts for October delivery were down 24 cents at 76.06 USD per barrel. Yesterday, the contract hit a day high 77.43 USD, just over a dollar short of its all-time record.

High oil prices continue to be fundamentally a result of a very tight global supply/demand equation in oil. Many analysts have ignored oil's recent and continuing strength and this is another important and fundamental factor supporting gold.

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