Gold was up $10.10 to $980.50 per ounce in trading in New York yesterday and silver was up another 33 cents to $20.06 per ounce (more on silver below). In Asian and early European trading, gold and silver have remained strong and near respective record and 27 year high levels at $988.25 and silver reached $20.70. Gold also strengthened in British pounds and euro to new record highs. The London AM Fix at 1030 GMT this morning was at $981.75, Â£494.56 and ‚¬646.31.
While gold and silver are overbought in the short term and may experience an intermediate top soon, markets can stay overvalued for long periods. John Maynard Keynes pointed out: The market can stay irrational longer than you can stay solvent. This was the case in the 1970s. Interestingly Warren Buffett told CNBC overnight that the U.S. was in recession and it is nothing like 1973, 1974 yet. Clearly he believes that stagflation is a real possibility.
It seems that many in the financial markets and even in the precious metal markets do not fully understand the ramifications of a real short squeeze in the precious metals. A massive short squeeze could propel gold and especially silver to far higher levels in the coming weeks.
As always best to focus on the medium to long term and the continuing strong fundamentals with uncertainty in equity and property markets, oil at over $100 a barrel, the dollar under continuing pressure and the credit crunch deepening. These will likely result in any correction in gold being of a short duration prior to challenging the inflation adjusted high of some $2,400 per ounce in the coming years.
It is important to focus on the long term fundamentals and not get too caught up in what might be a wave of bullishness followed by a short term correction before continuing higher. We can't say for sure if this current wave will turn into a parabolic short squeeze which will result in a significant increase in volatility and markedly higher prices. Thus it would be wise to continue to avoid 'timing the market'. Investors nervous of buying near a top should adopt a dollar cost averaging approach and maybe buy 33% or 50% of their bullion allocation now and the balance in the coming weeks. This ensures not buying near an intermediate top and ensures getting an average intermediate price.
We continue to be confident that our 2008 predictions of $1,200 in gold and $25 in silver remain more than likely.
Support and Resistance
Strong support in gold is now seen at $890 to $900. Short term support is now at $950 and $965 and below that at $930 and $915. The $1000 price level remains a short term price target and $1,200 is now a realistic possibility in the coming weeks.
Silver is trading at new nominal (non inflation adjusted) 27 year highs at $20.35/20.39 at 1200GMT.
Platinum is trading at new record highs at $2285/2295 (1200GMT).
Palladium is trading at new record highs at $590/595 per ounce (1200GMT).