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Gold, Silver & Oil "Stuck for Summer" as Stimulus vs. Austerity Debate Rages

Commodities / Gold and Silver 2010 Jul 20, 2010 - 07:19 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF GOLD in wholesale dealing slipped towards new multi-week lows against all major currencies on Tuesday, dropping beneath $1178 an ounce for Dollar investors as European stock markets extended yesterday's fall.

G7 government bonds rose as the US Dollar held steady against the Japanese Yen, and rose to a 3-day high vs. the Euro and a 1-week high vs. the Pound.

Crude oil meantime traded near $77 per barrel, but "could be stuck in this range for the summer," according to one broker, while silver held above Monday's 6-week low of $17.50 an ounce.

Gold priced in Euros edged back below €29,500 per kilo, almost 13% below last month's record high.

UK investors looking to buy gold today saw the price dip to £773.50 an ounce – its lowest level since the General Election of May 6th.

"Investors remain uncertain," says London consultancy the VM Group, studying the most recent Commitment of Traders data from the US gold futures market.

"Gold found some support [on Monday] near the 100-day moving average at $1179.20," said a note earlier this morning from Japanese conglomerate Mitsui's precious-metals dealing team, adding that the long-term uptrend starting in Oct. 2008 now comes in at $1170 an ounce.

"With concerns of a sovereign default receding and inflation expectations in Europe and the US almost non-existent, it is difficult to see where the impetus for a move higher will come from in the short-term."

"True support in Gold lies at $1167 from the May 21 low," says a technical note from Scotia Mocatta analysts, "with [Monday's] close in gold below last week's low of $1187 keeping price risk to the down side."

"For now, we are neutral on the precious metals," says Walter de Wet at Standard Bank. "We still prefer a core long strategic position [in Gold] on a 6-month horizon, but selling into rallies seems the best tactical strategy at the moment."

Gold investment demand, however – as expressed by exchange-traded gold trust holdings – has "defied any major liquidation" on previous price dips, de Wet notes.

"We expect this to remain the case as long as interest rates, especially longer-dated yields in the US, are low."

US Treasury bonds today ticked higher in price, edging the 10-year yield back down to 2.94% per year.

New data on Monday showed US home prices weaker than analysts forecast, while today's Housing Starts, Building Permits and Consumer Confidence data were expected to remain fragile.

After European construction output fell faster than forecast on official figures for May, German factory input prices rose sharply in June, new data showed Tuesday morning.

The UK's broad M4 measure of money supply last month completed its first quarterly contraction since records began in 1963.

"We need expansionary monetary and fiscal and banking policy [and] we need all of them until further government action begins to crack the status of the US Treasury bond as a safe asset," writes Berkeley professor Brad DeLong, taking part in this week's "Austerity vs. Stimulus" debate in the Financial Times.

"People are nervous of war-sized deficits when there isn't a war to justify them," counters Harvard professor Niall Ferguson in the same paper.

"The choice [is] not between stimulus and austerity. It [is] between policies that boost private-sector confidence and those that kill it."

Back in the bullion market, meantime, "The summer doldrums for metals prices are here," writes Questor stock-tipper and analyst Garry White in The Daily Telegraph, "and we could see a couple of months of falls.

"As is usual gold bugs are likely to top up their holdings on the dips."

"We have maintained a conservative and defensive portfolio," says Greenlight Capital hedge-fund manager David Einhorn in his latest client letter, "and have almost entirely avoided the volatility of the schizophrenic market [with] gains on our macro positions, most notably gold."

Fellow high-profile hedge-fund manager John Paulson saw his gold investments deliver one of only a few gains for his clients in the 3 months to March, according to BusinessWeek.

Overall, Paulson's Advantage Plus offering lost 8.8% over the first half of 2010. His group's Gold Fund rose 7.3% last month alone, gaining 13% for the year-to-date, the magazine reports.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly 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 , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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.

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