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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Surges Towards All Time High As Safe haven Against Crashing Dollar

Commodities / Gold & Silver Nov 07, 2007 - 09:09 AM GMT

By: Gold_Investments

Commodities Gold
Gold surged a further $13.60 to $820.70 in New York yesterday. Silver surged 57 cents to $15.24 in New York and has since surged over $16 which is its highest level since 1981 and a 26 year high (more on silver below). Gold continued to surge in Asian and European trading and is trading at $845 at 1100 GMT which is a new 27 year high.


Safe haven buying and a flight to quality on broad based dollar selling and oil above $98.30 has led to a further surge in the gold price. At some stage there will be a sharp correction, however some analysts are postulating that the correction could be when gold reaches $900. The correction will likely be sharp but short and gold will likely bounce back from any correction in short order due to marked increase in macroeconomic risk in the world and consequent safe haven demand.

Gold has also surged to new all time record highs in euro and British pounds and is trading at £402.20 GBP (up from £392.50) and €575 EUR (up from €563). These new record highs are non inflation adjusted highs.

Yesterday's warning from Morgan Stanley analysts of a "violent correction" in the dollar is looking increasingly likely. The dollar fell sharply again overnight against all currencies and has traded at record lows against the euro and British pound. The drop is being attributed to the increasing risk of a huge firesale of toxic mortgage backed assets, fears that a downgrade of bond insurers may prompt new, more serious, credit panic but the more immediate cause were comments by an influential senior Chinese politician that Chinese reserves should be diversified out of the dollar. Initially he specified the euro but then qualified his remarks and said they should diversify their huge reserves of over $1.43 trillion dollars into other "stronger currencies".

Immediately after the comments, the dollar dropped some 1% in less than 5 minutes and went from 1.4560 to fresh highs above 1.4660 and gold rallied sharply. The Dollar index since hit a new record low of 75.20. The comments were made by Cheng Siwei who is Vice Chairman of the National Peoples' Congress. Added to this and possibly of more significance was an actual official of the People's Bank of China who said that the U.S. dollar is losing its status as a world currency. Gold is seen as a money and currency in China and as the strongest currency in the world in recent years. Given China's clearly stated intentions in this regard, they are likely to continue diversifying into gold.

Forex and Gold
The dollar fell sharply again overnight and this morning and remains near record lows versus the euro at 1.4680 and at 2.1025 versus sterling.

The dollar index has fallen to a new record low at 75.27 (from 76.40 yesterday) and is down a further 1.5% in just 24 hours. The likelihood of a currency crisis is less remote. David Morgan is one of foremost experts on the silver market and he has conducted an interesting interview on this possibility, how it might evolve and how to prepare for it. 'A Frightening Worldwide Currency Crisis' - http://www.youtube.com/watch?v =NN97tmw6qvY .

Silver
Silver surged 57 cents to $15.24 in New York yesterday and has surged to over $16 in early European trade. It is up some 10% in 3 days and would be expected to correct however given the humongous short position in silver there is a possibility of a massive short squeeze. Also it is interesting to note that silver traded and consolidated in a range broadly between $5 and $7 per ounce in 2005 before breaking above $7. It then very quickly doubled in price surging from $7 to over $15. Given the length of silver's consolidation between $11 and $15 we will likely see another sharp move to the upside, possibly targeting as high as $30. It is worth remembering that silver remains the laggard of the commodities many of which are up 10 fold or 1,000% in recent years (oil for example from $10 to nearly $100). Silver is only up some 200% and remains a long way from its 1980 high of $50 per ounce. Adjusted for inflation that would be some $150 per ounce. Silver remains very undervalued and should be bought for the long term.


http://quotes.ino.com/chart/?s =FOREX_XAGUSDO&v=dmax

PGMs
The non-monetary metals have not received the safe haven bid and have underperformed their monetary cousins. This is likely to continue.
Platinum was trading at $1479/1484 (1130 GMT).
Spot palladium was trading at $378/382 an ounce (1130 GMT).

Oil
Crude oil rose to a new record high at $98.30 a barrel for the first time in New York on forecasts U.S. stockpiles fell for a third week and as the dollar tumbled to a record low against the euro, spurring demand for commodities and safe haven currencies. Traders worried about a winter fuel crunch due to thinning oil stocks and a North Sea storm.

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