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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Safe haven as US Dollar Under pressure on Recession Concerns

Commodities / Gold & Silver Oct 03, 2007 - 08:55 AM GMT

By: Gold_Investments

Commodities Gold
Gold took a well earned and well signposted breather yesterday after its recent large rally. Gold was down 2.4% from $747.40 to $729.70.

It recovered towards the end of trading and rose in the New York Access Market and in early trading in Asia.


The financial and economic news remains very poor and there are increasing signs that the U.S. is on the verge of recession which will put further pressure on the U.S. dollar and lead to safe haven support for gold.

Support for gold at $726 was breached interday yesterday which could lead to a gold retreading lower ground at strong support at previous resistance at $690 to $700 and the 50 day moving average at $693.

The ramifications of Citigroup's latest report on gold "Gold: Riding the Reflationary Rescue" written by Citigroup analysts John H. Hill and Graham Wark continues to be digested. They wrote: "We believe that the policy resolution to the credit crunch will take the form of a massive, extended 'Reflationary Rescue', in a new cycle of global credit creation and competitive currency devaluations. This could take gold to $1,000 an ounce, or higher."

The report says that central bank bullion sales earlier this year were "clearly timed to cap the gold price". "Despite the headlines, Central Bank sales are running dead flat with the low level of 2006, Hill and Wark said. "IMF sale speculation is ‘white noise.' This is a further endorsement of the Gold Anti-Trust Action Committee's (GATA) work in this regard and the Citigroup report, like its Credit Agricole Chevreux report before. It is important to take note when two important institutions such as Citigroup and Credit Agricole produce reports of this nature claiming that Central Banks may have been manipulating the gold price lower. Ultimately, free markets always overcome artificial interventions by governments and central banks and once this transpires we are likely to witness markedly higher gold prices.

Forex and Gold
Talk of a rescue package for Northern Rock saw the pound rise to a two-week high against a basket of currencies this morning. Sterling was last at 2.0398 against the dollar and 1.4392 against the euro. And the dollar was at 0.7053 against the euro and 115.96 against the Japanese yen.

The dollar continued to rise yesterday from the record lows reached on Monday morning, as traders booked profits on recent gains. Overnight, it edged slightly lower. The modest bounce in the dollar is largely technical as it recovers from oversold conditions and extended short positioning ahead of key U.S. economic data due over the second half of the week.

Silver
Spot silver was trading at $13.33/13.35 (1200 GMT).

PGMs
Platinum was trading at $1348/1352 (1200 GMT).
Spot palladium was trading at $348/354 an ounce (1200 GMT).

Oil
Oil rose above $80 a barrel on Wednesday as investors expected weekly U.S. data to show crude stocks declining and raising the prospects for a winter supply crunch.

U.S. crude gained 23 cents to $80.28 a barrel by 0903 GMT. Prices had fallen close to $3 from a near record high late last week on concerns the global credit crunch would stymie U.S. and European economic growth. Brent crude was off 7 cents at $77.31.

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