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Gold Recovers $1400, "Support Strengthened" as Japan Crisis Worsens

Commodities / Gold and Silver 2011 Mar 16, 2011 - 10:13 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD rose in London trade on Wednesday to regain $1400 per ounce as a rally in Japanese shares failed to prevent further losses in global stock markets.

With 450,000 people now homeless in freezing conditions, technicians at the stricken Fukushima nuclear plant were forced to abandon their work by a jump in radiation levels. 150 miles away, Russia joined France in moving to evacuate its embassy staff.

Developed-world government bonds rose, pushing long-term interest rates down to fresh 2011 lows, but debt auctions by Russia and Poland both failed to raise more than  50% of the money sought.

Silver prices tracked gold's recovery, briefly touching $34.80 per ounce – a new 31-year high when first reached two weeks ago.

"We saw very good buying below $1390 from the physical market" says Swiss refiner MKS's finance division  in a note on Tuesday's 3.1% drop in the gold price.

"It would appear that investors consider yesterday's sell-off as overdone," agrees South Africa's Standard Bank.

Now "cautiously re-entering the precious metals market," this gold investing – "together with a weaker Dollar and some interest from the physical market, could see some upside for gold and silver."

Crude oil prices meantime rallied fast as forces in Saudi-neighbor Bahrain opened fire on pro-democracy protesters, and pro-Gaddafi forces in Libya attacked the rebel-held stronghold of Benghazi.

The Bank of Japan again pumped cash into Tokyo's money market, taking the 3-day total above $700 billion, while in a rare televised appearance, Japanese emperor Akihito said he is "deeply worried" by the country's nuclear crisis.

Uranium prices have dropped nearly 10% over the last week. World No.2 mining producer Cameco – already down 15% from Feb.'s 27-month peak – has shed another 14%.

Japan is the world's third largest nuclear power generator. World No.2 France today called for an emergency G7 finance teleconference to discuss "systemic risk".

"[The crisis] is affecting how people in the US are thinking about their fledgling nuclear expansion," says Doug Davis at the $425 million Toronto money manager Davis- Rea Ltd., speaking to the Wall Street Journal.

"Who are you going to sell your uranium to if the Americans don’t expand nuclear power plants and the Japanese don't need it for a while?"

Over in the gold mining sector on Wednesday, a number of smaller producers reported  sharply higher operating margins for the end of 2010, thanks to "higher realized prices" as the metal broke then-all-time highs above $1400 per ounce in Nov. and Dec.

"This is a bubble and a fear trade," reckons Yogi Dewan, CEO of $640 million family-office asset manager Hassium in London, speaking to CNBC today.

"As soon as the recovery takes hold and the interest-rate cycle changes you will see mass outflows from gold into riskier assets."

A raft of new US data today defied analyst forecasts with a surprise outflow of $113 billion on the nation's fourth-quarter Current Account, plus fewer-than-expected new housing starts and building permits.

Raw material costs for US factories 1.6% last month from Jan., the fastest month-on-month pace since the post-deflation rebound of 2009.

"The problem [with the gold price rally] is I think it may be well sold into," says a London trader quoted by Dow Jones Newswires.

"Serious damage was done [to gold's technical picture on Tuesday] and although longer term, we are still in a bull market, short-term the uptrend is broken."

"Silver also had a technically bearish day," says Russell Browne at bullion market-maker Scotia Mocatta, "however the chart continues to be more encouraging than gold's.

Support for the silver price now "lies at late February congestion of $32.15," says Scotia. In gold, yesterday's drop "only found [support] at the 100-day moving average of $1379.

But "after [that] test, this level has strengthened and gold will now require a significant catalyst to break below here."

By Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

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 2011

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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