Gold and silver gave up the previous day’s gains with gold down $15.50 to $964 per ounce in trading in New York yesterday and silver down 32 cents to $19.74 per ounce. No follow through was seen in Asian trading but in European trading, gold and silver have continued to correct. The London AM Gold Fix at 1030 GMT this morning was at $966.25, £488.30 and €636.15.
Gold (and the other precious metals) sold off on profit taking after the recent surge in prices. Gold was due a correction after the surge in recent weeks and with oil falling below $100, a correction was to be expected. There have been numerous sell offs in gold in recent years and they have nearly all been sharp and of a shallow duration. In recent months, sell offs have been very short in duration of some 2 to 5 days and a similar sell off and subsequent consolidation prior to challenging $1,000 could be expected now. However, the possibility of a short squeeze and some extremely nervous shorts who have lost billions in recent weeks might make this correction even shorter than expected.
With oil remaining above $100, U.S. recessionary fears, the dollar remaining under pressure and the Federal Reserve likely to cut interest rates soon, gold is likely to be well supported above $900 per ounce. Safe haven buying will likely continue and investors are rightly likely to continue buying on the dips.
Markets will seek guidance from today’s Services ISM and ADP employment report and these should further help elucidate the extent of the slowdown in the U.S. After Bernanke’s recent downbeat assessments (not to mention those of Greenspan and Buffett) the Fed Beige Book will be important in giving markets guidance.
$10,000 per Ounce Gold
Shayne McGuire, an investment expert in the U.S., director of global research for the $115 billion Texas Teacher Retirement System and author of the forthcoming book ‘Buy Gold Now’, said that world gold mining had peaked in 2001 and fallen since, squeezing supply.
There are strains on supply, as the mining industry struggles to increase production, and there are signs that central banks may begin to slow down their sales of gold after decades of dumping. Clearly, to this last point, there has not been a free market in gold. Perhaps we will soon discover gold’s real value, and I think it's not cheap. Clearly, central banks have impeded a truly free market in gold. In the years ahead we will discover gold's true value, and I think it's several thousand dollars higher than what we see today.
He said that all the gold in the world was worth $3.4tn, yet only a small fraction of that amount was traded on financial markets. If 1% of the global value of stocks and bonds - roughly $960bn - went into gold, the precious metal would sky-rocket.
McGuire added: Thinking of prices well above $10,000 per ounce would suddenly become rational.
Jim Rogers, Soros’ Partner Invests in Gold Coins
Reuters reports that Jim Rogers buys commodities through exchange traded funds but invests in gold in the form of gold coins.
Rogers only invests in exchange traded securities, with the one exception being gold coins.
Rogers is on record as saying he owns gold as financial insurance. He recently said the U.S. was 'out of control' and would in the coming years lose its superpower status.
Jim Rogers - who co-founded the now closed Quantum Fund with George Soros - told 750 global fund managers in Tokyo that, America is completely out of control, there will be a 20-year bull market in commodities and that prices will be in turmoil. And he also warned that it made sense if global competition for resources ended in armed conflict.
Mr. Rogers told delegates to the CLSA investment forum that the prices of all agricultural products would explode in coming years and that the price of gold, which hit an all-time high of $964 an ounce yesterday, will continue its surge to as much as $3,500 an ounce.
Support and Resistance
Short term support is now at $950 below that at $930 and $915. Strong support in gold is now seen at $890 to $900. The $1000 price level remains a realistic short term price target and $1,200 remains a realistic possibility in the coming weeks.
Silver is trading at $19.42/19.47 at 1200GMT.
Platinum is trading at $2165/2175 (1200GMT).
Palladium is trading at $524/530 per ounce (1200GMT).
As with gold and silver, the PGMs had become overvalued in the short term and correction was due.
The power issues in South Africa remain of importance and Eskom is to make an announcement on Friday as to whether they will be able to increase the supply to the mining industry which have been crippled by the recent power outages which will curtail supply in a market that is already in deficit. Luke Burgess reported in a recent issue of Gold World:
Global platinum supplies are expected to fall 135,000 ounces, or 2%, to 6.66 million ounces this year. Meanwhile, demand is expected to increase by 195,000 ounces, or 2.9%, to a record 6.925 million ounces. This would leave the platinum market with a supply deficit of 265,000 ounces, the seventh year in the past eight that the market has recorded a shortfall.
Economics 101 means that platinum is more than likely to (despite short term corrections) appreciate significantly in the coming months and will its sister palladium.