Let Them Eat Gold!

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Gold prices oscillated within a fairly tight range as the new week got underway in Asia overnight. Modest bargain-hunting was seen as prices dipped to near $905 but gains were capped near $915 as players awaited US economic data and the upcoming Fed smoke signals to provide near-term direction for the metal. Oil prices at first tried for $126 on news that tropical storm Edouard might threaten the Gulf. Values also firmed following an absence of a reply to the informal nuclear issue deadline Iran received recently. Instead, its military tested a naval missile capable of threatening ships as far as away as 300 km from its coast.

The US stated that Iran leaves the UN Security Council no other choice but to augment sanctions against the country. Later this morning, crude was seen coming off more aggressively, as it neared the $124.20 level and as the time for US consumer income and spending figures to be released drew closer. They are not expected to show much in the way of buyers in a good mood. Analysts warn that oil might still have perhaps as much as $30 to drop before it finds a better price footing and demand equation. As regards the Fed, whilst no action is expected on interest rates, there is plenty of anticipation that dollar-related and anti-inflationary jawboning will not be absent from the gathering's post-mortem communique. The greenback continued to hover near 73.46 on the index and 1.557 against the euro.

Monday's New York market opening had gold values under mounting selling pressure, quoted at $900.70 - down $9.00 at the start of the session. Participants will be looking at the vital signs of the US economy as the aforementioned consumer data and factory orders number work their way into the news and then into the markets over the next couple of hours. Continuing housing woes ate into first-half 2008 profits at HSBC - they fell 29% on writedowns and on what the bank sees as a significant slowdown in the Asian region.

Silver started on the back foot as well this morning, dropping 15 cents to $17.30 while platinum was not only managing not to hold the $1600 level but was dipping rapidly to fresh six-month lows on continuing negative news from the world of wheels. The metal was down $72 at $1558 and its companion, palladium, was off by $11 at $354 per ounce. Current dollar buoyancy and easing oil values are still posing a risk to the precious metals complex. Gold, in particular could accelerate its slippage, should values breach the $890 zone. The noble metals have already broken SMA supports on many a chart and we do not see gold being in a position to do significantly better amid the spillover effects from that niche.

On Friday we brought your the RBC precious metals outlook. Today, we bring you two differing views - the first one from HSBC and our good friend James Steel:

" HSBC on Friday raised its price forecast for precious metals, citing a combination of bullish factors, including a weak U.S. dollar, inflation and an output decline. James Steel, metals analyst at HSBC in New York, said he was raising his long-term forecast for gold to $700 an ounce from $600 an ounce, reflecting the industry's higher marginal cost of production.

"We expect gold be supported by rising inflationary pressures and a weak U.S. dollar, but weak jewelry sales and higher levels of scrap will free up metal for investment demand," Steel told clients in a note.

However, he kept his average forecast for 2008 at $915 an ounce, and $850 for 2009 and $725 for 2010 -- all unchanged from his previous forecasts.

For silver, Steel raised its 2008 forecast to $18.00 an ounce from $17.25 an ounce, to $16.50 from $15.50 for 2009, and to $15 from $14 for 2010.

Steel also lifted most of his forecasts for platinum group metals.

"We believe the platinum deficit will narrow due to flat auto demand, but supply will keep the market from moving to a surplus; diminishing Russian stocks, whether true or not, should help keep palladium buoyant," Steel said. Steel maintained his platinum forecast at $2,100 an ounce for 2008, but he raised his outlook to $1,850 from $1,725 for 2009, and to $1,700 from $1,575 for 2010. He also boosted his palladium price view to $450 an ounce from $420 an ounce for 2008, to $400 from $360 for 2009, and to $380 from $340 for 2010."

The second analysis is from India's Commodity Online. It lists the current roster of factors which could make for a dip to buying areas that many in India are still awaiting before the next festival season rolls around:

"Funds and investors were seen moving their investments from commodities market, on receding oil prices, thereby strengthening US dollar against major currencies, which was evident from dollar index, which closed higher compared to previous three weeks indicating an intermediate uptrend for US dollar in coming days.

Gold has had substantial run in the past year - from US$600 to US$1033 - due to the sell-off in US dollar and high oil prices, which were pushing gold as best hedge to these adversaries.