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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Dip "Offers Buying Opportunity" as Zero Rates Seen Until End-2010

Commodities / Gold & Silver 2009 Nov 19, 2009 - 11:51 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD slipped early Thursday in London, losing almost 2% from yesterday's new Dollar record as global stock markets also fell despite a report from the OECD which doubled 2010 growth forecasts for the world's richest economies.

The US Dollar rose sharply on the forex market, but the drop in gold outpaced the drop in non-Dollar currencies, helping the gold price in Sterling retreat 1.1% from Wednesday's 9-month highs.


Eurozone investors now looking to buy gold saw the price dip €7 per ounce from yesterday's break above €770 – the best level since Feb 23rd.

"As of yesterday, the futures market assigns a 65% probability to flat US interest rates until Jun 2010," says Walter de Wet in today's Commodities Daily from Standard Bank.

"We still see no rate hike in 2010 (unless it's in Q4)...and low rates should continue to support precious metals."

Crude oil and base metals also fell as the US Dollar rose early Thursday, led by copper's retreat from new 14-month highs.

US Treasury bonds rose but UK gilts and German Bunds fell, pushing up the yield offered to new buyers.

"There is a good chance that when New York opens, this dip [in gold] will be seen by many as a good buying opportunity," said one London dealer this morning, citing "technical support" at $1130.

Hedge fund manager John Paulson reportedly met with investors yesterday to announce a new gold fund, due for launch in Jan. 2010.

Both Reuters and Bloomberg cite attendees at the meeting who said that Paulson – estimated to be worth $6 billion himself – will put $250 million into the new offering.

Paulson & Co. currently holds over 10% of the $30 billion under management in Gold and gold-related investments.

"Higher highs and higher lows keep trend followers looking for a continued bullish move," says Scotia Mocatta in its daily note.

"Our measured target is 1188."

"Gold is holding onto its gains incredibly well considering the lack of support from the Dollar overnight," said another trader to Reuters this morning.

"Momentum in gold is phenomenal at the moment."

Outside the leveraged gold futures and options market, however, the latest Gold Demand Trends from marketing-group the World Gold Council shows physical gold buying worldwide holding steady, rather than growing, between July and end-Sept.

Compared with the same period last year, total world gold demand fell 34%. Global gold jewelry demand during the third quarter – which saw the start of India's traditional festive and wedding seasons – was the weakest third quarter so far this decade.

In value terms, however, it was only a two-year low for Q3 at $14.6 billion, rising by more than one-fifth from the second quarter of this year.

Physical gold investment demand also rose in cash terms from the preceding quarter, the WGC says. But data provided by the GFMS consultancy also show that total investment demand across the six months ending Sept. 30th lagged the last three months of 2008, and barely matched the third quarter of last year.

It stood 25% below the record sales of Jan.-March 2009.

"Is the current weakness in Indian [jewelry] demand a reflection of changing times, or merely a cyclical issue?" asks the WGC's report. "We believe the latter is the case.

"Gold continues to be an intrinsic and fundamental part of the wedding and gift season, and the primary means by which [Indian] women can protect their personal wealth."

High and volatile gold prices "are currently acting as a constraint on demand in India," the WGC concludes. But "gold will remain a key savings vehicle for consumers.

"India is a nation of very high savers – an example which some Western countries could learn from."

"In the United States literally no one owns gold," writes Richard Russell, author of the Dow Theory Letter for five decades, quoted at TheStreet.com and naming six factors favoring gold right now – from zero per cent interest rates to new central-bank buying by India, Russia and China.

"Rather, US citizens are selling their gold (jewelry) to companies who are advertising that they'll buy 'your overpriced' gold for cash."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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