Profit-Taking Starts after Historical Highs

Gold managed to notably rise yesterday to record yet again another historical high at 1062.40 and closed at 1054.90 in New York, rising by 0.99%. The rise seen is caused by a rush of liquidity towards precious metals, where liquidity varied on gold from an inflationary hedge over the long term, or a haven against uncertainty over the global economic improvement, and also including speculations that were witnessed.

Meanwhile, silver and platinum surged in trading yesterday; where silver inclined by 1.14% to close at 17.78; whereas platinum closed at 1345.00 gaining 1.36%.

Investors head into precious metal markets for investments, alongside hedging amid the current recovery the global economy is witnessing. Yet, despite of this recovery being slow and slight, we find traders expecting a rise in industrial and consumption demand on platinum and silver.

Commodity indices rose yesterday; where the S&P GSCI Index recorded gains of 13.48 points to close at 472.52, this major rise came alongside the falling U.S. dollar and rising crude, where it had effected traders that had listened to Trichet's conference yesterday; where he warned indirectly of the negative effects that will be caused by governments’ stimulus plans on inflation, incase governments plans fail to exit their stimulus measures timely and effectively.

Interest rates, alongside unorthodox central banks' policies, alongside the U.S. dollar’s slump and rising commodities, are fueling long term inflationary expectations, accordingly increasing the demand for safe havens to preserve purchasing power. Rising unemployment levels could be a strong reason behind traders heading to precious metals; where the recession left extremely high unemployment levels which are expected to surpass 10%, thus, causing a major drop in consumer purchasing power, even if inflation levels do manage to remain low. Therefore, precious metals remain the safest investments, where at the same time it provides a good market return from the constant appreciation they have been witnessing.

This week, gold has been witnessing the biggest rally since last April, which seemingly is ending today with at a minor decline; gold fell 0.83% and is currently trading at $1046.10 per ounce at 02:27 GMT; whereas, silver fell 1.07% to trade at 17.59; platinum declined 1.12%, to trade at 1330.00.

Profit-taking by speculators assured that gold is least witnessing speculative investments, compared to silver and platinum; where platinum today witnessed a major plummet, surpassing gold, and is moving at a relatively slower pace like silver, thus causing major profit-taking by speculators ahead of the weekend. Meanwhile, the economic fundamentals that were released in the Asian session today were overall positive. Japanese Industrial Orders inclined, alongside sales in General Motors in China that had reached record highs.

These fundamentals had a positive influences on financial markets, but since this data were lower than expectations it limited the surge that had overshadowed stock markets, thus causing some declines in speculative profit-taking, since many now see the global economy and its second largest economy, Japan, is improving at a slower pace than what was previously expected.

We expect to see a volatile fluctuation on precious metals today, leaning to the downside; while investors continue to take profits. However, over the medium term, our expectations still point to further upside moves and more historic glory and records for gold.