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Gold Trades Flat Ahead of ECB Interest Rate Decision

Commodities / Gold & Silver 2009 Jan 15, 2009 - 10:41 AM GMT

By: Mark_OByrne

Commodities Gold is marginally higher today but has fallen to one month lows as markets await the ECB interest rate decision. The ECB is expected to cut by 0.5% today and that has put the euro and gold under pressure as the dollar has strengthened in recent days.


However, the deteriorating outlook for the US economy as seen in the very poor retail numbers yesterday (sixth monthly fall) will likely see the dollar come under renewed pressure in the medium term. The sea of red ink and fiat currency in extremis is leading to massive budget deficits in debtor nations and this is contributing to continuing safe haven demand for gold. This demand is broad based with demand coming from all sections of society – from middle class housewives worried about their savings to hedge fund managers worried about government defaults and a systemic crisis.

Investor demand remains very robust as seen in the ETF gold holdings continuing to rise to new records. The selloff in recent days has seen demand in India pick up as expected and this suggests that gold is unlikely to fall much below these levels.

This is especially the case as supply remains anaemic at best. The world’s second largest producer of gold, South Africa (close 2nd to China) saw gold output down 8.7 percent yr/yr in November. This is due to power supply problems with Eskom the national power utility which suffered a near collapse in the electricity grid in January.

South African gold output has been falling since 1970 when annual production was over 1,000 tonnes. Last year South Africa produced 272 tonnes of gold. South African gold output fell to its lowest level in 84 years in 2006 because of declining mining grades. Production in 2006 was 275,119kg in 2006, some 7.5% lower than the previous year. The last time South Africa produced less than 260 tonnes of gold was in 1920.

It is estimated that South Africa's full year output could be as much as 1 million ounces lower (over 30 tonnes) in 2008 than it was in 2007 which is another factor should help gold regain the $1,000/oz price level in the coming months.

 

By Mark O'Byrne, Executive Director

Gold Investments
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Gold and Silver Investments Limited
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Email info@www.goldassets.co.uk
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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.

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