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Gold Fell as Dollar Bounced

Commodities / Gold & Silver Oct 23, 2007 - 08:52 AM GMT

By: Gold_Investments

Commodities Gold
Gold was down $10.70 to $752.90 in New York on Monday. Gold's sell off was mild and expected despite some of the more alarmist headlines. It was a drop of a mere 1.4% which is not much considering gold had moved up nearly 17% in just 60 days. Nothing grows to the sky and there are always pullbacks, profit taking, healthy corrections and consolidation in any bull market.



Since closing in New York it has risen in the New York Access market and in trade in Asia and early in Europe and is trading at $757.50 at 1100 GMT.

Gold may continue to consolidate prior to continuing on its onward march to next resistance at the psychological level of $800 by year end. Oil prices are not expected to decline significantly and indeed the Turkish Iraqi tensions look set to escalate. Also, Indian holiday season festival demand for physical gold is at its strongest in the coming two to three weeks and good physical demand was seen in India in the low $750s.

Forex and Gold
The dollar's bounce is likely another dead cat one and while it may rally further in the short term (as far as previous breached support of 80 on the US Dollar Index which is now overhead resistance) it will likely resume its downtrend in the coming weeks which will lead to higher gold prices.

The G-7 said that economic growth will be hurt by rising costs of credit, record oil prices and the housing turmoil in the U.S.

The dollar hit a record low against the euro on Monday as Rodrigo Rato, managing director of the International Monetary Fund warned that the U.S. currency could suffer a dramatic fall that would shake confidence in American assets. The outgoing IMF managing director said the depreciation of the dollar had been orderly, but cautioned there was a risk of a runaway sell-off that would hit growth in major economies.

Rato warned yesterday that the adjustment may be brutal. "An abrupt fall in the dollar could either be triggered by, or itself trigger, a loss of confidence in dollar assets," he said. We concur with Rato and have long warned that dollar selling could become more aggressive and 'abrupt'.

Whilst some form of bounce in the dollar was to be expected there was no fundamental reason for the sudden change of sentiment towards the dollar after reaching new record lows against the euro. And there was speculation that official intervention may have taken place by central banks using large institutional trading banks as proxies. Treasury Secretary Paulson has already said how he has reenergised the The Working Group on Financial Markets or Plunge Protection Team and they may have intervened in markets (many traders and analysts suspect that huge tranches of currencies and indeed S&P and other Index futures are bought at strategic moments in order to calm and maintain confidence in financial markets. This may have happend especially given the fears of another Black Monday Crash.

Federal Governor, Krozner said that the Federal Reserve will act as needed to protect the U.S. economy from market turmoil. He said that the Fed will do whatever is necessary to prevent damage to the economy from the credit crunch that has gripped Wall Street and warned that it will take time for financial markets to fully recover from the strains "The Federal Reserve will continue to monitor developments in financial markets and act as needed to support the effective functioning of these markets and to foster sustainable economic growth and price stability."

Silver
Spot silver was trading at $13.51/13.53 (1100 GMT).

PGMs
Platinum was trading at $1442/1447 (1100 GMT).
Spot palladium was trading at $360/365 an ounce (1100 GMT).

Oil
Oil, which last week touched an intraday record of $90.07, fell on speculation that credit-market losses may stunt economic expansion thus curbing demand for the commodity.

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