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Gold Healthy Consolidation Following US Interest Rate Cut

Commodities / Gold & Silver Mar 19, 2008 - 07:44 AM GMT

By: Mark_OByrne

Commodities Gold was up $2.20 to $1003 per ounce in trading in New York yesterday while silver was down 30 cents to $19.89 per ounce. In illiquid electronic trading after the Federal Reserve cut interest rates by 75 basis points, very counter intuitively gold fell in value by nearly 2%. With gold already up by more than 19% so far this year (some 10 weeks), consolidation is healthy and to be expected.


Gold has subsequently risen somewhat in Asian trading and again in trading in London this morning, showing that the initial increase in risk appetite (as seen in the increase in the value of the dollar and in the surge in stock markets) is likely to be short lived. It would be wise not to be seduced by short term movements in markets and continue to focus on the all important macroeconomic  ‘big picture' which remains poor and extremely uncertain.

Gold remains well supported with oil remaining close to $110 a barrel and the dollar falling again overnight in Asia and early trading in Europe (see FX Commentary below). Gold is the only asset that is not someone else's liability or promise to pay. In a world where there can be a $400 billion default by a company with $1.5 billion of capital, gold's hard, tangible and extreme rarity make its safe haven and finite currency qualities more important than ever.

The London AM Gold Fix at 1030 GMT this morning was at $995.25, £497.376  and €632.146  (from $1005.75, £499.13 and €635.786  yesterday).
19-Mar-08 Last 1 Month YTD 1 Year 5 Year
Gold $     
994.95
7.12%
19.39%
51.98%
196.55%
Silver      
19.99
13.98%
35.32%
51.87%
352.19%
Oil     
108.59
8.60%
9.49%
90.74%
263.42%
FTSE      
5,542
-7.12%
-13.87%
-10.46%
46.77%
Nikkei     
12,260
-10.88%
-19.90%
-27.92%
52.28%
S&P 500      
1,331
-1.33%
-9.37%
-5.08%
52.25%
ISEQ      
5,844
-10.68%
-15.71%
-37.31%
46.91%
EUR/USD     
1.5751
6.93%
7.99%
18.34%
48.86%
© 2008 GoldandSilverInvestments.com


Already European equity markets are under pressure with increasing concerns regarding the health of some British banks.

Ignore the siren call of the complacent as this looks more than likely to be another dead cat bounce in equity markers and another brief sojourn of financial calm prior to the next act in the epic unfolding global financial crisis. Unfortunately, the drama looks soon to increase, intensify and degenerate from high farce to tragedy.

FX Commentary
The markets are not always right but they are always the markets. In the wake of the Federal Reserve's 75 basis point rate cut the dollar rallied hard across the board. It posted its ‘largest single day gain in 9 years' against the Japanese Yen, notes one commentator. On Monday we saw that annualised inflation is running at a rate significantly higher than the current (and still falling) interest rate.

The Greenbacks rally is still mystifying, why anyone would want to hold a currency that is guaranteed to buy you less this time next year (due to very high inflation), beggars belief. This rally will more than likely be short term and presents nothing more than an opportunity for profit taking and post pull back, it will be used by the long time dollar bears to re-establish short dollar positions.

The FX market's short term knee jerk reactions are the stuff of legend but alas there is hope, those clever people trading US Treasury Bonds understand the implications of the Fed actions. Ten year Treasury yields jumped by up to 15 basis points post Fed yesterday. Low interest rates, high inflation and a crumbling dollar is not the combination of characteristics that make a 10 year bond investment look attractive when it yield a paltry 3.30%.

The bond markets of the UK tell a similar tale. The post budget  sell off in UK Gilts was fuelled by the need for significant increased issuance by the Treasury. The Gilt markets doesn't like that and neither does the currency market. Sterling fell to a new all time low against the Euro around 0.7900 and has had a modest pullback since. The upward trend in Euro/Sterling is well in place and long term looks set to continue. The rollercoaster moves seen in Sterling against Yen shows the mood swings of the current market. On Monday, post Bear Sterns risk aversion was the only message as Sterling fell sharply to a low of 192.60. Post Fed on Tuesday the rally lifted the currency pair to a high of 201.80 as the Dow, with all the problems of the world now solved and the outlook for the US economy doing a miraculous 180 in 24 hours, jumped by 420 points.


http://www.research.gold.org/assets/image/research/img/charts/dailyshort_4.gif

http://www.research.gold.org/assets/image/research/img/charts/dailyshort_2.gif


After a good night's sleep and a little rational thought while they slumbered traders have decided that maybe this is not the time to go risk seeking and have sold Sterling against the Yen again this morning, sold the Greenback against the Yen, sold everything that they have against the Swiss Franc and reconsidered the wisdom of selling their gold and silver yesterday. The dust may have settled but the fallout is yet to be seen.

The Euro continues higher against Sterling and the Greenback and the commodity currencies return to their uptrend after their brief sojourn yesterday. The markets are not always right but they are always the markets.

Support and Resistance
Gold's support is now between $960 and $970. Resistance is at the recent new record nominal high of $ $1030.80.

Silver

Silver is trading at $19.84/20.90 at 1100GMT.

PGMs

Platinum is trading at $1957/21967 (1100GMT).
Palladium is trading at $474/481 per ounce (1100GMT). 

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold Investments
Tower 42, Level 7
25 Old Broad Street
London
EC2N 1HN
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

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

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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