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Saturday, October 29, 2011

Optimism over the Eurozone plan reducing gold’s safe-haven appeal

After a bumpy start yesterday, owing to optimism over the Eurozone plan reducing gold’s safe-haven appeal, the metal managed to make some significant headway later on. Growing dollar weakness, together with some scepticism regarding the proposed Eurozone plan, most likely increased the appeal of gold as an alternative asset.

Today, despite a relatively weak dollar, we’ve seen some weakness emerge in gold. After yesterday’s rally the most likely culprit is profit-taking. In Asian markets overnight we saw buying largely absent, giving sellers the upper hand. This trend looks set to continue into today. However, amid growing scepticism over the Eurozone debt plan and the concomitant uncertainty of the region’s economic prospects, we feel that downside will be limited. Consequently, we would advocate buying dips on gold and silver.

PGM are tracking the broader precious metals complex, having largely shrugged off the disappointing Japanese vehicle production figures. Vehicle production in Japan fell 4.5% y/y in September after the previous month’s 1.8% y/y expansion. In terms of data today, the afternoon’s US personal spending/income and consumer confidence figures are the most noteworthy.

As usual, market participants will be looking for indications on the health of the US economy and the possibility of recession. Gold support is at $1,712 and $1,688. Resistance is $1,757 and $1,776.

Friday, October 28, 2011

Eurozone’s plan to rein in ongoing crisis in the region has reduced gold’s safe-haven appeal

After making solid gains yesterday, gold has lost some ground this morning as optimism over the Eurozone’s plan to rein in ongoing crisis in the region has reduced gold’s safe-haven appeal. Silver has tracked gold down, while platinum and palladium have reacted more in line with industrial metals, managing to make some modest gains.

Continuing with the reaction to the news from yesterday’s EU summit, amid a lack of details and scepticism over the actual implantation of the proposed plan, we are wary about the current euphoria. The optimism could soon fade, which could see participants once again adopt a risk-off stance. However, given gold’s close co-movement with equities recently (the last few days excluded), it is uncertain whether the metal will benefit from a market returning to risk aversion.

For now though, there seems little that will derail appetite for risk, which should continue to see gold and silver trade on the backfoot today. A weaker dollar should at least limit any downside. In addition, physical demand should keep gold from slipping too far, although, as already mentioned, with India currently celebrating Diwali, this support is not what it usually is.

Gold support is at $1,694 and $1,678. Resistance is $1,727 and $1,743.

Thursday, October 27, 2011

Gold is back above $1,700/oz

Gold is back above $1,700/oz. While some support for gold is coming from the weaker dollar, we view FX moves as only a short-term factor influencing gold. This is evident gold has traded at levels anywhere from $600/oz to as high is $1,800/oz for the euro/dollar at $1.38 (red line).
Clearly, there must be something else driving the metal in the long-term. This, we believe, is predominantly global liquidity and, to a lesser extent, real interest rates.

We note that global liquidity should continue to grow as long as (1) governments increase their nominal debt burden and/ or (2) central banks, such as the US Fed, implement quantitative
easing measures. In 2010, global liquidity grew 16%, in 2009 by 9.2% and 2008 by 28%. We believe that global liquidity would likely grow by 20% in 2011 and 18% in 2012. We do not argue other factors such as fx moves, credit risk and equities influence gold in the short term. But we view these factors as only short-term influences. We therefore judge the long-term value for gold relative to where global liquidity and real interest rates dictate gold should be.

Accordingly, our view is that the gold price will push higher in 2012 amid the growing risk of a recession in the EU and the US and given that the US Fed appears to committed to an
accommodative monetary stance. This should ensure that interest rates remain low well into 2013. We continue to believe gold will push higher into 2012.

Wednesday, October 26, 2011

Remain constructive on gold over the long term

CFTC (Commodity Futures Trading Commission) data, released on Friday
21 October 2011, reveals the following
  1. After only modest improvements in the net position over the previous two weeks, the past week’s deterioration confirms that the speculative market is indeed cautious about gold’s short-term prospects. However, positioning remains uncommitted either way, so participants don’t seem particularly worried about the gold price falling off a cliff.
  2. Along with prices, net speculative length decreased, although only moderately, with only 25.8 tonnes lost over the past week. The net speculative position for gold now stands at 514.4 tonnes — within touching distance of this year’s low (510.4 tonnes) recorded four weeks ago when prices fell 8.6% w/w. The change in the net position was mostly the result
    of speculative longs being unwound (24.3 tonnes), with the increase in speculative shorts (1.6 tonnes) contributing marginally.
  3. After only modest improvements in the net position over the previous two weeks, the past week’s deterioration confirms that the speculative market is cautious about gold’s short-term prospects. However, positioning remains uncommitted either way, so participants don’t seem particularly worried about the gold price falling off a cliff.
  4. ETF holdings continue to climb, albeit modestly (4.7 tonnes), another indication that markets remain uncertain about gold’s direction over the next few weeks.
  5. We remain constructive on gold over the long term.

Tuesday, October 25, 2011

Combat the sovereign debt crisis, investors bid up the price of gold

The gold price was pressured last week by widespread weakness in commodities as uncertainty over the European sovereign debt crisis cast a pall over financial markets. Euro zone finance ministers began a six-day meeting on Friday in the hopes of developing a more robust plan to combat the escalating crisis. Leveraging up the European Financial Stability Fund (EFSF) to as high as €2 trillion has been a topic of considerable debate, but no concrete plan has yet to be agreed upon.

Grant concluded by saying that “Europe has now run out of road. There is no compromise that is politically acceptable. Whatever choices are left are ones that are either politically or economically painful and perhaps impossible. Whatever gets done is going to be nowhere near what some in the marketplace have hoped for or bet on. Europe has reached the wall.”

The implications of Grant’s predictions for the gold price are quite unclear, particularly in the short term. In the absence of a leveraged EFSF, Greece is almost certain to default, and several other PIIGS may not be far behind. Such a scenario would likely lead to substantial and widespread liquidation in financial markets – where investors are forced to sell any and all asset classes to raise cash – which could present a significant headwind for the gold price.

However, further turmoil in Europe could also have grave consequences for the euro currency and thus add to the wave of declining confidence in fiat currencies across the globe. Furthermore, the risk of deflation in many developed and emerging economies would likely increase in this scenario, thereby provoking central banks to implement a slew of additional accommodative monetary policies in efforts to resuscitate their respective economies. In such an environment, the gold price would likely be a prime beneficiary.

The gold price climbed higher Monday, rising back above the $1,650 per ounce level. Despite the fact that European leaders decided at this past weekend’s summit in Belgium not to use the European Central Bank’s balance sheet more aggressively to combat the sovereign debt crisis, investors bid up the price of gold anyways. Gold prices have been mired in a correction as debate rages over whether the current deflation scare is in the process of sending the global economy into a new recession.

Saturday, October 22, 2011

Calls for More Fed Easing, QE3 On The Rise

Several members of the Federal Reserve have begun in recent days to make calls for the central bank to provide additional accommodative monetary policies.

Fed President Eric Rosengren and Fed Governor Daniel Tarullo each made comments this week that the Fed should consider resuming its purchase of mortgage-backed securities, which would effectively mark the launch of a third round of quantitative easing (QE3). The Fed last purchased mortgage-backed securities as part of QE1.

The intention of such measures would be to further stimulate the housing market, which has shown few signs of improvement despite the rebound in numerous other sectors of the U.S. economy since 2009.

Judging by recent history, another round of quantitative easing would almost certainly be positive for gold prices and other precious metals.

The gold price spiked toward $1,650 per ounce Friday, rallying on the back of weakness in the U.S. dollar and on speculation that European leaders were prepared to print over a trillion dollars to prevent a systemic crisis. Ministers from all 27 members of the European Union will meet tomorrow to discuss how to bolster market confidence in the integrity of its banking system. Stock and commodity prices moved higher across the board with the $31.90 rise in COMEX gold futures accompanied by a 5.1% rise in copper and a 1.7% gain in crude oil.

Friday, October 21, 2011

U.S. will return to a gold standard within the next five years

While Ron Paul is generally considered to be the foremost proponent of the gold standard, he has gained quite a bit of company in recent months. The idea of the United States returning to a gold standard is gaining considerable traction among many Republican 2012 presidential candidates.

Herman Cain was quoted recently as saying that “Our dollar is suffering. It’s similar to when we wake up in the morning, an hour is 60 minutes. We don’t have to go look in the paper to see what it’s worth. We’ve got to get back to a dollar is a dollar is a dollar. . . Yes, we do need a gold standard to do that.” Newt Gingrich, former Speaker of the House, has called for “hard money with a very limited Federal Reserve.”

Steve Forbes – who ran for President as a Republican in 1996 and 2000 – earlier this year predicted that the U.S. will return to a gold standard within the next five years.

Kent Sorenson, a state senator in Iowa, asserted that “Right now we have a Federal Reserve printing money that’s not backed by anything — it’s just paper. Hess noted that Sorenson – who is supporting Michelle Bachmann in her presidential bid – has proposed a measure legalizing gold and silver coins as currency in Iowa.

The gold price retreated $19.48 to $1,621.18 per ounce Thursday as weakness in gold continued this morning. The spot price of gold fell to as low as $1,606.90 in overnight trading, but pared its losses as the U.S. dollar turned lower against a basket of foreign currencies. Silver prices fell as well, by $0.56, or 1.8%, to $30.69 per ounce. The gold price showed a muted reaction to the weekly U.S. jobless claims report, which at 403,000 met the median estimate among economists.

Thursday, October 20, 2011

Gold price oscillated near $1,650

The gold price and broader financial markets will likely trade based upon news flow related the report from The Guardian that France and Germany “reached agreement to boost the eurozone’s rescue fund to €2tn (£1.75tn) as part of a ‘comprehensive plan’ to resolve the sovereign debt crisis.” The plan is comprised of two parts – the first of which involves giving the EFSF “additional levers enabling it to offer first loss guarantees for bondholders, be they public or private.”

According to the report, “Senior diplomats say this will deliver a fivefold increase in the fund’s firepower – giving it more than €2tn compared with the current €440bn lending capability. The EFSF will in effect become an insurer, thereby overcoming European Central Bank resistance to the idea of turning into a bank.”

Under the second part, euro zone banks would be recapitalized “to meet the 9% capital ratio that the European Banking Authority is demanding after its re-examination of the exposure levels of 60 to 70 ‘systemic’ banks.” Although The Guardian acknowledged that “technical details” of the plan have not been finalized, the framework is in place to deploy additional ammunition to tackle the crisis.

While the markets extended their gains following the EFSF news, the report was soon after refuted by Dow Jones Newswires, which claimed that euro zone officials are still debating the size of the bailout fund.

Looking ahead, the gold price is likely to continue to take its cues from the developments across the Atlantic. A significant increase in the EFSF, as reported today, would inherently involve additional money printing and likely be bullish for the price of gold. Investors with positions tied to the gold price will thus be keeping a close eye on this weekend’s meeting of euro zone finance ministers, as well as the crucial European Union Summit on November 3, to see the specific components of Europe’s plans.

The gold price oscillated near $1,650 Thursday morning. Rumors out of Europe that its leaders were prepared to expand the size of the European Financial Stability Fund (EFSF) have led to increased volatility in gold prices as well as in the broader stock and commodities markets. The UK-based Guardian reported that France and Germany are ready to approve a 2 trillion euro rescue fund for Europe and its ailing banking system.

Wednesday, October 19, 2011

Physical demand for gold remains strong

Gold have succumbed to the general negativity in markets, prompted by fading optimism regarding the Eurozone, and deepened by disappointing Q3:11 Chinese GDP growth. Starting in New York yesterday, liquidations across assets have continued into the European open this morning, with sell-offs in precious metals particularly acute in Asian markets during overnight trade.

Of concern, is that gold are failing to garner much interest from safe-haven demand, which reminds us of several weeks ago, when cross-asset liquidations saw gold and silver lose considerable ground. Once again it appears that regardless of the general risk-off sentiment, precious metals look set to suffer the same fate as equities and other risky assets. In addition,
as highlighted yesterday, we can expect a period of heightened volatility in the build-up to this weekend’s EU summit.

Physical demand for gold remains strong, and as we’ve seen in the past few weeks, we foresee significant interest emerging below $1,650. Therefore, we remain confident that a sustained fall below this level is unlikely, although a temporary dip towards $1,600 could be on the cards if the speculative market continues to shun gold.

Gold support is at $1,651 and $1,643. Resistance is $1,682 and $1,704. Silver support is at $30.79 and $30.55, resistance is at $31.97 and $32.90.

Tuesday, October 18, 2011

Gold’s “slow grind up”

The U.S. Dollar Index (DXY) advanced 0.6% to 77.031 this afternoon, while the euro currency dropped 0.7% to 1.3775 against the greenback.

Phil Streible, a senior market strategist at MFGlobal, presented a bearish case for the Gold in a recent note to clients. Gold’s “slow grind up” over the past two weeks “makes me think gold prices could correct,” he wrote. ”If it takes out $1,650 then $1,605 is the target.”

The gold price, at $1,684 per ounce, hovered near unchanged Tuesday morning. After trading as high as $1,695 overnight, the price of gold retreated after German Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, warned that a quick ending to the sovereign debt crisis in Europe was not forthcoming. S&P 500 stock futures turned down on the news while cyclically-sensitive commodities, such as oil and copper, pared their gains.

Saturday, October 15, 2011

Survey by Bloomberg revealed that traders have turned the most positive on the Gold

A weekly gold survey by Bloomberg revealed that traders have turned the most positive on the Gold in three months. The latest results showed that 88% of respondents expect the price of gold to rise next week – the highest level since mid-July. The positive sentiment was attributed to ongoing concerns over “Europe’s debt crisis, slowing growth and a bear market in equities,” according to Bloomberg.

While the data is encouraging on the surface, it could also be viewed as a bearish indicator from a contrarian perspective.

The gold price rebounded Friday morning, gaining $12.47 to $1,680.54 per ounce in spite of a better than expected report on U.S. retail sales. Silver climbed alongside the price of gold, advancing 1.9% to $32.42 per ounce. Strength in gold and silver prices was fueled by modest weakness in the U.S. dollar, which lost 0.3% against a basket of the world’s leading currencies.

Friday, October 14, 2011

Gold price slid back below $1,670 per ounce Friday morning after U.S. weekly jobless claims came in modestly ahead of expectations

The gold price slid back below $1,670 per ounce Friday morning after U.S. weekly jobless claims came in modestly ahead of expectations. Silver retreated alongside the gold price, by $0.53, or 1.6%, to $32.08 per ounce. In the currency markets, the U.S. Dollar Index advanced 0.2% to 77.20, while the euro fell 0.4% to 1.3731 against the greenback.

The gold price held near $1,680 per ounce on Wednesday after the Fed minutes revealed rising concerns over the health of the U.S. economy. “Stresses in global financial markets, sluggish growth in households’ real incomes, and heightened uncertainty about economic prospects seemed to have contributed to lower consumer and business sentiment and to be weighing on economic growth. Recent indicators pointed to continuing weakness in overall labor market conditions, and the unemployment rate remained elevated,” according to the transcript of the most recent Federal Open Market Committee (FOMC) meeting.

The Fed also spent a considerable amount of time discussing European sovereign debt issues. Although the central bank noted that the impact of euro zone concerns on U.S. financial institutions had thus far been muted, the Fed issued a warning for their counterparts across the Atlantic. “Participants agreed that, if European policymakers did not respond effectively, European sovereign debt and banking problems could intensify, with potentially serious spillovers to the U.S. economy.”

As for U.S. monetary policy, the minutes disclosed that the majority of the FOMC felt that Operation Twist “could contribute importantly to better outcomes in terms of the Committee’s dual mandate of maximum employment and price stability.” While most FOMC members supported the “maturity extension program,” the minutes revealed that two Fed Governors favored “stronger policy action.” Although the Fed did not identify the two, their existence could raise the possibility of a third round of quantitative easing – which would likely be quite favorable for the price of gold.

Thursday, October 13, 2011

Fundamentally bullish on gold, regardless of recent trends

As for the gold price, Dr. Martin Murelbeeld, chief economist at Dundee Wealth Economics predicted that it “will likely trend sideways, within a fairly wide band, until such time as the ECB/EFSF readies the aforementioned bazooka, which it will inevitably have to do when a major bank default occurs.” Murenbeeld – a long-time gold bull – also noted that “We are fundamentally bullish on gold, regardless of recent trends.”

“If 2008 is a guide then there is a chance” that the gold price’s 200-day moving average “could be tested in due course,” Murenbeeld contended. “Pressure continues to build for a European policy response however, so we cannot rule out a sudden updraft in the gold price on the back of new monetary policy initiatives in Europe. Leaders seem to agree that something needs to be done but, as of yet, the ‘bazooka’ is nowhere to be seen.”

David Rosenberg – another long-time gold price bull – offered similar advice for Europe in a note to clients on Tuesday. “No doubt it is good to see EU policymakers shift from denial to acceptance but the reality is that the extent of the bank recapitalization needs to far exceed any government’s capacity to remedy the situation in its entirety.”

The gold price climbed $16.51, or 1.0%, to $1,678.76 per ounce Wednesday afternoon amid a broad-based rally on Wall Street. Strength in the price of gold was fueled by a decline in the U.S. dollar against a basket of foreign currencies. The SPDR Gold Trust (GLD), a proxy for the gold price, rose $1.43, or 0.9%, to $163.53 per share.

Wednesday, October 12, 2011

European policymakers may help fuel a rally in the price of gold

Recent measures by European policymakers may help fuel a rally in the price of gold, according to TD Securities strategist Bart Melek.

In a note to clients published on Tuesday, Melek wrote the following:

The gold market went into correction mode at roughly the same time as specs started taking outsized short euro positions and boosted their gold shorts slightly. The uncertainty associated with the European sovereign debt crisis was the prime catalyst behind the move away from the euro and gold.

With European governments becoming more committed to recapitalizing the European banking system and providing a plan to backstop highly indebted EZ (eur zone) nations, there may be less impetus to buy dollars in order to build cash positions. The required bond issuance to fund the European Financial Stability Facility (EFSF) will very likely deepen the euro bond market and may very well lift euro demand, prompting short covering of euro positions and depressing the greenback. Gold could very well rally as traders cover their short euro and gold positions, and as there is less impetus to build dollar cash balances.

The gold price retreated on Tuesday, falling nearly 1.1% to $1,661 per ounce. Risk aversion rose across the globe, leading to lower stock and commodity prices. Oil and copper prices fell 1.2% and 3.5% to $84.35 per barrel and 3.24 per pound, respectively.

Tuesday, October 11, 2011

Gold bar supply is tightening in Hong Kong and Singapore

The Wall Street Journal noted that Credit Agricole analyst Robin Bhar wrote in a note to clients that resurgent Asian physical demand is helping to support the gold market. ”Intraday price volatility has subsided sharply, a major factor in giving the bulls enough confidence to re-enter the market against a background of very active physical buying,” Bhar noted.

He later added that gold bar supply is tightening in Hong Kong and Singapore, while premiums are now at their highest level since February of this year.

The gold price surged higher Monday, rising $39.00 to $1,677 per ounce. Weakness in the U.S. dollar, spurred by healthier risk appetites amongst investors, propelled the price of gold. The euro rose against the greenback following a pledge this past weekend from French and German leaders to do whatever is necessary to prevent a banking crisis. S&P 500 stock futures climbed 15.40 to 1170.30, which crude oil rose 2.2% to $84.80 per barrel.

Saturday, October 8, 2011

Gold price held firm near $1,638 per ounce

The gold price held firm near $1,638 per ounce closing this week despite the better than expected U.S. employment report. The spot price of gold climbed to as high as $1,665.20 in overnight trading and remained in positive territory after the release of the September non-farm payrolls report. Silver prices headed north alongside the gold price, advancing $0.59, or 1.8%, to $32.59 per ounce.

The September jobs report showed that non-farm payrolls increased by 103,000 in September, well above the 60,000 consensus estimate among economists. The unemployment rate remained at 9.1%, in-line with expectations. Despite the sell-off, gold futures posted a weekly gain of $13.50, or 0.8%. In doing so, gold snapped a four-week losing streak by posting its first weekly advance since August 29-September 2.

While the ECB did not cut rates yesterday, it did offer some respite by granting 1-year repurchase agreements. This easing of liquidity boosted market confidence and saw renewed interest across asset classes. The BoE extended its quantitative easing programme by £75bn. Gold and other precious metals have benefited. This is not surprising, given their close positive relationship with global liquidity and the threat that a drying up of liquidity would pose to all commodities, even precious metals.

Yesterday, there were reports that Vietnam’s central bank has allowed six institutions (including the Saigon Jewellery Co.—the country’s top gold trader) to re-open offshore gold trading accounts. Although the impact might be taken as bullish, if it should lead to a rise in gold imports into Vietnam, these are likely to be too little to prompt any significant price action. As alluded to the past few days, all eyes will be on today’s US non-farm payrolls data. Our G10 analyst sees a risk of a higher reading than expectations (consensus: 55k), but certainly not a particularly firm number. Consequently, long-term support for gold and silver from continued concerns over a possible US recession remains in place. In addition, Eurozone debt problems will also continue to remain a focus, and consequently benefit gold from a safe-haven demand perspective.

Friday, October 7, 2011

Price of gold is likely to remain in this range for the next couple of months

Although the gold price bounced back from Tuesday’s 2.1% sell-off, it remained near the middle of its recent $1,600-$1,670 trading range. Michael Lewis, an analyst with Deutsche Bank, contended that the price of gold is likely to remain in this range for the next couple of months. “My sense is that gold is a bit like silver after its collapse (in May 2011) from almost $50 to around $35,” Lewis noted. “It was incredibly erratic but with quite a stable performance over about six to eight weeks.”

Lewis went on to say that “I don’t think there is going to be much clear direction for gold at the moment. To some extent the market is just a bit broken, and needs to repair itself… the strength that we saw (earlier this year) is going be difficult to repeat.”

The gold price stabilized near $1,650 per ounce Friday morning after weekly jobless claims in the U.S. came in roughly in-line with expectations at 401,000. The spot price of gold climbed to as high as $1,656.10 earlier this morning, but pared its gains heading into the open of U.S. equity markets. In contrast to the gold price, silver climbed $0.27, or 0.9%, to $30.76 per ounce.

Thursday, October 6, 2011

The gold price stabilized near $1,640 per ounce Wednesday night despite a better than expected report on the U.S. labor market

The gold price stabilized near $1,640 per ounce Wednesday night despite a better than expected report on the U.S. labor market. The price of gold moved down to $1,597 in overnight trading but rebounded early this morning as the U.S. dollar turned lower against a basket of foreign currencies. The ADP employment report revealed that 91,000 private sector jobs were added in September, above the 75,000 consensus estimate among economists.

While many investment banks have lowered their gold price targets in recent weeks, Credit Suisse did the opposite.

The firm lifted its average 2012 estimate from $1,540 to $1,850 per ounce, and forecasted that the yellow metal will rebound from last month’s weakness over the remainder of 2011.

“Given that many of the factors that have underpinned the rapid increase — most importantly, fears of a global meltdown — remain in place, we expect gold prices to continue to recover over the balance of 2011,” analyst Tom Kendall wrote in a note to clients.

Looking out over the next several years, however, Kendall was not as bullish. The Credit Suisse analyst predicted that gold prices will peak in the second half of 2012 and subsequently retreat – though not crash – in 2013. His 2013 and 2014 targets are $1,790 and $1,425 per ounce, respectively.

Wednesday, October 5, 2011

Weakness in Gold was not fueled by any meaningful strength in the U.S. dollar on Tuesday

Weakness in Gold was not fueled by any meaningful strength in the U.S. dollar on Tuesday, but did coincide with further widespread losses in equities and cyclical commodities. In afternoon trading, crude oil futures dropped 3.0% to $75.30 per barrel, while copper slid 3.5% to $3.04 per pound.

The gold price dipped Wednesday morning, sliding $28.30 to $1630.40 per ounce on the back of continued liquidation pressures in global financial markets. The 0.5% drop in the price of gold occurred alongside broad-based weakness in commodities. WTI crude oil led to the downside, dropping 2.6% to $75.58 per ounce while copper declined 1.5% to $3.10 per pound.

Jean-Claude Juncker, the chairman of the Eurogroup ministers, told reporters after the meeting that “As far as the PSI (private sector involvement) is concerned, we have to take into account the fact that we have experienced changes since the decisions we took on the July 21, so we are considering technical revisions, so yes.”

Although Juncker did not provide specifics on what a new agreement could look like, speculation has developed that the 21% haircut on Greek debt agreed to in July will be insufficient given the fact that Greece’s economy has deteriorated further in recent months.

European financial markets added to their recent losses on Tuesday following the meetings, as investors viewed the developments as the latest item of uncertainty in an ever-growing list of headwinds for the euro zone.

The next meeting of euro zone finance ministers – originally scheduled for October 13 – has been canceled so that inspectors from the European Union (EU) and International Monetary Fund (IMF) will now have until November to asses the impact of Greek austerity measures on the nation’s budget deficit before deciding on the eventual sovereign debt haircut.

Tuesday, October 4, 2011

Gold price has been largely fueled by widespread liquidation stemming from concerns over the European sovereign debt crisis and a double-dip recession

The recent weakness in the gold price has been largely fueled by widespread liquidation stemming from concerns over the European sovereign debt crisis and a double-dip recession in the U.S. Although these same concerns helped propel the gold price to a series of new record highs in July and August, the yellow metal fell victim to significant selling pressure over the past month. With investors forced to raise cash, many sold one of the top performing asset classes this year – gold.

Looking ahead, recession and sovereign debt fears are likely to continue to serve as key catalysts for the gold price. Commenting on the developments in Europe, Dennis Gartman – publisher of The Gartman Letter and a long-time commodities investor – wrote on Friday that “The passage of the expansion of the EFSF’s (European Financial Stability Fund) duties and powers does not end the problems for Europe, and indeed in the case of the Germans it has only begun a new series of problems, not the least of which is that now that Greece has been effectively bailed out, the other troubled nations of Europe shall line up, one behind the other, for the same bailing-out.”

“We have ushered in the era of ‘Me-Too’,” Gartman added. “Italy will want the same treatment that Greece has gotten, or will soon be getting; Portugal will want the same; Spain the same, and eventually this will extend beyond what we commonly refer to now as the PIIGS.”

The gold price advanced over 2% Tuesday morning, climbing $48.90 to $1,669 per ounce. The price of gold has been mired in a correction that at one point wiped away over 20% of its value. Since touching $1,533 per ounce on September 26, gold has bounced over 8% to its current level above $1,650 per ounce. Heavy liquidation in the broader stock and commodity markets, as well as rumors of outsized hedge fund selling, has pressured the Gold.

Saturday, October 1, 2011

Strong buying from China and India will continue to support gold high prices

Although gold has fallen victim to broad-based liquidation and U.S. dollar strength in September, it remains “intrinsically more sound than most, if not all” other financial safe-havens, according to GFMS.

The metals consultancy firm contended that the yellow metal remains the preferred safe haven asset – over U.S. Treasuries, German government bonds and the Japanese yen – despite its recent weakness. One factor likely to continue boosting gold prices is central bank purchases, according to GFMS via the Wall Street Journal.

Paul Walker, global head of precious metals at GFMS, recently commented that while strong buying from China and India will continue to support gold high prices, in order for the Gold to reach $2,000 per ounce, greater investment demand will be needed.

There has been “tremendous demand figures coming out of the India in the last day or two,” Walker noted. In addition, he added that investment demand from Western nations is likely to return to the gold market.

There is “every likelihood” that gold “will see a resurgence in investment demand,” Walker added. ”High $1,900-$2,000 is a definite price target for the year.”

The gold price held steady near $1,624 per ounce Friday closing while concerns over a global economic slowdown continued to weigh on financial markets. The spot price of gold climbed to as high as $1,635.80 in overnight trading, but relinquished its gains as the U.S. dollar moved higher against a basket of the world’s leading currencies.

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