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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Falls in Unision with Crude Oil

Commodities / Gold & Silver Nov 28, 2007 - 09:15 AM GMT

By: Gold_Investments

Commodities Gold
Gold was down $12.50 to $813.80 per ounce in New York yesterday and silver was down 35 cents to $14.46 per ounce. Gold has continued to sell off in Asia and European trading and is at $797.50 per ounce at 1200 GMT. Gold remains near record highs in euro, British pounds and other currencies and is trading at £387 GBP (up from £401 on Monday) and €541 EUR (from €561 on Monday).


Gold's sell off was primarily due to black gold's sharp sell off with oil falling below $94 per barrel and the dollar's rally. Options expiration resulted in extra volatility. Technically there were large stops at $810 and these were triggered resulting in gold's fall to below $800 per ounce. Gold's recent low price on November 19th of $776.50 per ounce should provide support and long term value investors are buying on the dips.

The continuing and accelerating fall in home prices in the U.S. (Standard & Poor's reported that home prices fell by even more than expected in September in all 20 major cities covered by the Case-Shiller price index, even in cities that had been holding up before the August freeze in mortgage markets), volatility in stock markets and increasing inflation internationally is leading to a marked increase in safe haven demand for gold.

Physical demand remains robust internationally and the World Gold Council reported yesterday that China's demand for gold continued to rise in the third quarter as a hedge against inflation. The 'wealth effect' and a strengthening Chinese yuan will facilitate even greater demand in China. And this demand is likely to be replicated in India and other Asian countries.

Chinese gold demand is expected to hit a new record this year. Gold demand in China, including the mainland, Hong Kong and Taiwan, rose 24 percent in the third quarter to 88.1 tonnes.

Almost a quarter of a million workers will strike on Dec. 4 in a one-day protest against poor safety standards leading to deaths in South Africa's mines, bringing to a halt production in the world's biggest producer of gold and platinum. Declining production in South Africa is leading mining companies to have to explore and mine for gold at deeper and deeper levels leading to increasing risk to the miners. South Africa's first national mining strike will shut operations that produce three-quarters of the world's platinum and more than a tenth of its gold. There is increasing industrial unrest internationally as workers from Peru to Tanzania demand better wages, safety and employment rights. Given the increasing demand for gold and platinum, any disruption to supply from the world's largest producer will likely lead to higher prices for both metals.

Forex and Gold
The dollar's tentative recovery continues but trading is very volatile in currency markets as concerns remain about the U.S. economic outlook. Yesterday's data from the U.S. will have done nothing to ease increasing fears of a recession. Case Shiller reported that house prices fell more in September than had been expected, while the consumer confidence index fell far more than anticipated.

Silver
Silver is trading at $14.25/27 at 1200 GMT.

PGMs
Platinum was trading at $1418/1422 (1200 GMT).
Johnson Matthey, the world's top platinum refiner and fabricator, said this month the world platinum market will change course to end 2007 in a big deficit, with the metal seen hitting a historic high of $1,575 in six months on strong fundamentals and buoyant gold prices.
Spot palladium was trading at $340/346 an ounce (1200 GMT).

Oil
Oil prices sold off to below $94 per barrel yesterday. Fears of a recession in the U.S. curtailing the demand of the world's largest consumer of oil was cited as one of the reasons along with profit taking and a possible OPEC increase in production. However, many observers believe OPEC is already producing at maximum capacity.

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