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Don't Believe the Gold and Silver "Bubble" Burst Hype!

Commodities / Gold & Silver Aug 19, 2008 - 04:47 AM GMT

By: Mark_OByrne

Commodities Gold finished trading in New York  yesterday at $ 800.50,  up $14.50 and silver was  up 33 cents to $13.19 .  Both  gold and silver have again fallen  in  European trading . Gold i s trading at $ 7 86 .00/7 86 .40 per ounce (10.30GMT).

Gold rebounded from very oversold levels yesterday but market weakness has resumed overnight in Asia  and early in London as the dollar has continued to rally (reaching a 6 month high at 1.4631 to the euro) .  Speculative interest in the precious metals has fallen dramatically as seen in the recent CFTC data and this usually presages a rally in the precious metals.


As ever the important short term influences on gold will be whether the dollar can keep strengthening and whether oil prices continue to fall. However, it is likely that the important fundamental long term drivers of increasing macroeconomic and systemic risk (as seen in the fresh fears regarding the financial system yesterday on increasing money market liquidity tightening and sharp falls in Fannie and Freddie and former IMF chief economist Kenneth Rogoff said the worst of the global financial crisis is yet to come and has warned that a major US bank will fail within 3 months) and geopolitical risk (increasingly bellicose statements from the Russian President Medvedev and Prime Minister Vladmir Putin).

Also inflation continues to surge internationally as seen in Germany this morning. German producer-price inflation accelerated to 8.9 percent, the fastest pace since October 1981, reinforcing speculation the European Central Bank will keep interest rates at a seven-year high even as the economy cools.

While the sheen has been taken off gold's inflation hedging and safe haven attributes by the recent sharp sell off, those who write gold off do so at their peril.

Gold (bullion) remains the ultimate safe haven asset and a finite currency that is one of the few assets that has no counterparty risk and these essential attributes will lead to it's safe haven status being reaffirmed in the coming weeks and months.


Gold "Bubble" Burst?
Much of the financial media is once again heralding the bursting of the "gold bubble" or "precious metals bubble" and many seem to think that this is the end of the bull markets in gold and silver.

It is interesting that it is the same commentators who never predicted a bull market in gold and the barely acknowledged a bull market was in existence and yet they are again gleefully banging the "precious metals bubble is burst" drum.

The extent of the bearishness amongst many commentators and institutions is a classic contrarian indicator and is exactly what happens in bull markets which climb a 'wall of worry'. Bull markets do not normally end with the majority calling the top correctly rather they end when the majority (including the media) have been conditioned to expect ever higher prices and have given up attempting to call a top.

Only when the prevailing mass psychology is all bullish do bull markets end. As by then there are few buyers left to prop up prices and there is often a final exhaustion rally prior to the end of a bull market.

We are a long way from that now with much of the media continuing to completely ignore gold most of the time and only some specialist financial media covering it on a regular basis. There is blood in the street in the futures market and worry and fear is at levels not seen so far in this bull market and this should see prices bottoming in the coming days. 

Also it is worth recalling the hugh sell off in 1974. Gold had surged from it's fixed Gold Standard price of $35 per ounce to over $200 in 1974 prior to a brutal sell off that saw prices fall in half to nearly $100. At the time, many called a market top and they were proved very wrong when prices subsequently rose  8 fold in the next 6 years.

The fact that an asset class can be considered in a bubble when it has only recently surpassed it's all time record nominal high of 28 years ago is astonishing and will be seen as so in the coming years when gold likely reaches it's inflation adjusted high of some $2,400 per ounce.

Don't believe the gold and silver "bubble" burst hype!

Today 's Data and Influences
Housing starts and building permit figures released in the US today are expected to come in lower than last month and the dollars early gains may be tested by data that comes in weaker than expected.

Gold and Silver
Gold is trading at $7 86 .80/7 86 .40 per ounce (1 0 3 0 GMT).
Silver is trading at $1 2.78 /1 2.83 per ounce (1 0 3 0 GMT).

PGMs
Platinum is trading at $13 15 /13 25 per ounce (1 0 3 0GMT).
Palladium is trading at $2 72/ 2 77 per ounce (1 0 3 0 GMT).

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold and Silver Investments Limited
No. 1 Cornhill
London,
EC3V 3ND
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
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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