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Gold Breached $1000 on Safe Haven Demand

Commodities / Gold & Silver Mar 14, 2008 - 09:58 AM GMT

By: Mark_OByrne

Commodities As expected, gold reached the greatly anticipated and important psychological mark of $1000 per ounce in the futures market yesterday. Profit taking subsequently saw it sell off slightly. Gold was up $13.10 to $992.30 per ounce in trading in New York yesterday and silver was up 39 cents to $20.34 per ounce. In Asian and early European trading gold consolidated and remained in a range between $993 and $1000. The London AM Gold Fix at 1030 GMT this morning was at $997.00, £491.617 and €641.158 (from $975.75, £483.26 and €630.90 yesterday).

We are at or close to new record nominal highs in gold in most major currencies and £500 gold is likely in the coming days.

The dollar continued to plummet yesterday against all major currencies including the finite currency that is gold and reached the fabled $1,000 gold in the futures market.  The dollar reached new record lows against the euro at 1.5647, reached parity with the Swiss franc and fell below the very important 100 yen mark (see FX below). The dollar also fell against commodities, the majority of which again surged in value yesterday with oil reaching over $111 per barrel.

Inflation is already high and increasing internationally and the recent surge in commodity prices has yet to feed into the inflation statistics. Today's Eurozone inflation data and US CPI data will likely further confirm that is inflation and indeed stagflation is taking or has taken hold. Yesterdays retail sales in the US were very poor and the preliminary Michigan Consumer Sentiment survey for March will likely not make pretty reading.

Safe haven demand for gold is likely to increase in the coming months as investors seek to diversify and protect themselves from stagflation and a likely serious US recession. Further systemic risk was seen in the growing meltdown in the hedge fund sector and dangerously illiquid trading in the credit markets and much of the capital markets.

The inflation adjusted high of $2,300 per ounce looks a near certainty in the coming years given the myriad of strong fundamental factors driving this market place. Especially with Ben Bernanke's huge fleet of jumbo helicopters throwing billions and billions of fiat dollars at the deepening credit and solvency crisis.
14-Mar-08 Last 1 Month YTD 1 Year 5 Year
Gold $   996.60
Silver     20.62
Oil   110.17
FTSE     5,711
Nikkei   12,242
S&P 500     1,315
ISEQ     6,165
EUR/USD   1.5546
© 2008

Support and Resistance

Gold's support is now at $960. Resistance is at today's new record nominal high of $998.55 and at the psychologically and technically important $1,000 per ounce mark.

FX Commentary
The US dollar is on the ropes. It has fallen to fresh lows against the Euro, it has traded below 100 against the Yen and it has fallen heavily against oil, wheat, soybeans and gold.

And still Treasury Secretary Hank Paulson opines ”a strong dollar is in the nations interest”, with about as much conviction as an ex-President explaining his relationship with a Whitehouse intern. The market is starting to rapidly move out of the infinitely creatable Greenback and into finite commodity assets. This is inflationary and who wants to own a low yielding currency with high inflation?

The downward spiral continues. Are we now experiencing what Jim Rogers spoke about as the dollar slid through 1.5000 against the Euro: “you ain't seen nothing yet!”

But nothing moves up or down in a straight line in the markets so a violent short term retracement can't be ruled out. Co-ordinated intervention by the world's Central Banks could be one cause and if you are to believe Hank Paulson, this should be expected.

Strategists at Morgan Stanley and Goldman Sachs Group Inc. say that the dollar's record-breaking slide may trigger the first coordinated effort to prop up the currency in 13 years.

Bloomberg reports that a key economic adviser to the German government has suggested that the ECB should directly intervene in the foreign exchange markets before the euro-dollar exchange rate gets out of control. "The uncontrolled increase of the euro rate vis-a-vis the dollar threatens employment growth in the euro area," said Peter Bofinger, one of Germany's so-called "five wise men" appointed to advise the government on economic matters.

If currency intervention did take place it would be another short term panacea. The free market will ultimately dictate the value of all assets and no amount of manipulation of currencies or gold will prop them up (in fiat currencies case),  keep them down (in gold's case) or stop them finding their true fundamental and intrinsic value (in both fiat currencies and gold).

Further dollar weakness is likely, the bell for the end of the final round has not rung, the greenback is still on the ropes and its guard is down. If only it had a few more ounces of gold to prop it up.

Sterling has risen against the plummeting dollar but this is a function of dollar weakness and not sterling strength. Sterling remains close to all time lows versus the euro and is showing weakness against other majors as well.

Silver is trading at $20.40/20.44 at 1030GMT.


Platinum is trading at $2100/2110 (1030GMT).
Palladium is trading at $506/512 per ounce (1030GMT). 

By Mark O'Byrne, Executive Director

Gold Investments
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Dublin 2
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Gold Investments
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Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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