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Gold Sell off Despite Building Inflationary Pressures

Commodities / Gold & Silver Jun 13, 2008 - 09:07 AM GMT

By: Mark_OByrne

Commodities Gold closed at $869.50 in New York and was down $10.50 and silver closed at $16.48 down 29 cents. Gold rallied initially in Asia but has subsequently given up those gains and has fallen in Asia overnight and in early European trading this morning.


More of the same in the gold market today with gold taking its lead from oil which is down (1%) and the dollar which is up this morning (0.8% against the euro and 0.15% against sterling). Further jawboning and verbal support for the dollar will be expressed at the G7 meeting at the weekend and this could put gold under pressure (today).

Gold's sell off yesterday was again counter intuitive considering the action in other markets, particularly the commodity markets some of which surged to new record highs again. July gasoline made another all-time high at $3.5350 per gallon, up 6.92 cents as did corn, soybeans, natural gas and the benchmark CRB Commodities Index rose to another all time record high.

This means further serious inflationary pressures in the coming weeks and is very bullish for gold as it was in the stagflationary 1970's.

Gold has been consolidating in a range between $850 and $950 for nearly 3 months (since March 20 th ) which is healthy and to be expected. Especially given the extent of the move up in price prior to that. From mid August 2007, gold rallied from below $650 to over $1030 in just 7 months or 58% in just 7 months. Such a return is unsustainable in any market and a sharp correction and consolidation was to be expected.

The 200 day moving average has now moved up to $857 which is support. Physical buying is very strong below $870 and seems to be the floor under the price.

Should we experience price movements as last year, gold could bottom in August and then rally into year end and early 2009.

If gold replicated this performance (which is not beyond the bounds of possibility given the extremely strong fundamentals) then gold could rally from $850 to over $1,300 per ounce in a matter of months. We believe it will and that gold will reach over $1,200 per ounce in the coming months prior to a further correction and consolidation.

Today's Data and Influences
Given the current focus on inflation, markets are now starting to price in rate hikes of up to a full percent in the US before the end of the year. Prices pressures will remain the focus of attention today with the US CPI report for May due for release this afternoon. The headline CPI rate is forecast to rise to 4.0%, underpinning pricing fears at the Fed.

Also this weekend sees the G-8 Meeting, where the group is widely expected to make comments in support of a stronger Dollar. The two events could very well be the trigger that causes EUR/USD to break out of its current trading range but moves higher against the Euro could also be limited as the ECB's continues its own inflation bias.

Silver
Silver is trading at $16.37/16.41 per ounce (1230 GMT).

PGMs

Platinum is trading at $2021/2031 per ounce (1230GMT).
Palladium is trading at $434/449 per ounce (1230 GMT). 

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
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Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold Investments
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United Kingdom
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Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

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.

Mark O'Byrne Archive

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