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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Short-term Tedhnical Damage

Commodities / Gold & Silver Nov 16, 2007 - 10:05 AM GMT

By: Gold_Investments

Commodities Gold
Gold was down $26.70 to $785.70 per ounce in New York yesterday and silver was down 57 cents to $14.42 per ounce. Gold has since traded sideways in Asia and European trading and is at $790.10 per ounce at 1200 GMT. Tentative dollar strength and oil weakness may have contributed to the sell off. Gold was also down in GBP and EUR but not by as much. It is trading at £387 GBP (from £392.80) and €541 EUR (down from €549.80).


Gold's close below $790 resulted in some technical damage and may result in gold challenging support at the 50 day moving average at $767. If that is breached support is at the psychological level of $750 and the 100 day moving average at $727. However, we continue to believe that gold is unlikely to fall below $750 per ounce given the increasing macroeconomic and systemic risk in the world. Also considerable geopolitical risk remains with a possible U.S. confrontation with Iran and considerable uncertainty in nuclear armed Pakistan. A sell off was expected and given the size of the recent move it is normal that there be a period of correction and consolidation.

• Given the very significant demand as outlined by the World Gold Council in their latest report and the marked decrease in supply globally, as outlined in the Daily Telegraph today ( A perfect storm for gold as mines left empty , The Telegraph - http://www.telegraph.co.uk /money/main.jhtml?xml=/money /2007/11/15/bcngold115.xml ), gold is likely to challenge its record high before the end of the year.

Gold production is falling in nearly all countries internationally, except for China, and production in the world's largest producer South Africa has fallen to its lowest level since 1932. Some analysts are now wondering whether we may have reached 'peak gold' in the same way as we may have reached peak oil - the point where production of oil or gold reaches its maximum point before falling into irreversible decline.
The Telegraph's Ambrose Evans Pritchard wrote that "The era of 'peak gold' has arrived." "Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig miles into the centre of the earth. "Global mine supply is going to decrease at a much faster rate than people generally believe. Many of the new mines that people are anticipating will never come into production," he told the RBC Capital Markets gold conference in London."

• The FT reports ('FT: Long-term prospects for bullion continue to glisten') that Royal Bank of Canada believe that gold remains very attractive from a long term point of view. RBC says the gold market will sustain its positive momentum over the remainder of this decade, driven by favourable supply-and-demand fundamentals and concerns over the future global role of the dollar after its recent sell-off. RBC sees a likelihood of currency re-alignments if the dollar loses its position as the de facto anchor to which many countries in Asia, Latin America and the Middle East link their currencies.

"Increasing geopolitical risk combined with rising economic uncertainty should continue to provide incentives for investors to increase their exposure to gold as a safe haven," said Stephen Walker, director of global mining research at RBC Capital Markets.

• Bloomberg reports that 'Gold May 'Easily' Rise to $1,000, Marc Faber Says'. Gold may "easily'' rise to a record $1,000 an ounce next year as the dollar weakens and Asian central banks diversify their reserves, said Marc Faber, who advised investors to acquire the metal at the start of a six-year rally.

A "continued'' weakening of the U.S. currency may help gold climb above its all-time high of $850 traded in January 1980, said Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report. "That's baked in the cake in my opinion,'' he said today in an interview. "Gold is still relatively cheap. It hasn't risen as much as nickel, or oil.''

In an era of declining gold production and increasing investment and central bank demand, particularly in China and wider Asia, gold will likely reach its inflation adjusted high of some $2,200 per ounce in the next 3 to 5 years.

Forex and Gold
The dollar is largely flat against the EUR at 1.459 (from 1.462) but has strengthened further against GBP at 2.037 (from 2.045). This is not a function of dollar weakness rather of the weakness of the pound. As noted yesterday, the slowdown in the UK housing market and economy is likely to lead to interest rate cuts in the UK (despite record fuel and food prices and rising inflation).

Silver
Silver is trading at $14.50/51 at 1200 GMT.

PGMs
Platinum was trading at $1430/1436 (1200 GMT).
Spot palladium was trading at $366/372 an ounce (1200 GMT).

Oil
Light, sweet crude for December delivery rose to $94.06 per barrel. There are expectations that global crude supplies will remain tight despite a U.S. oil inventory report that showed a surprising build in domestic crude stockpiles and a slowing U.S. economy. Crude oil rose after Venezuela's oil minister said OPEC shouldn't increase production at its next meeting in December. Prices are set by the market and "OPEC can't do anything about the price,'' Rafael Ramirez told reporters before an OPEC heads of state summit in Riyadh this weekend.

Gold Investments
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