Gold and silver recovered strongly from the previous day's sell off and gold was up $21.70 to $987.50 per ounce in trading in New York yesterday and silver was up 88 cents to $20.64 per ounce. Gold and silver reached new nominal record and 27 year highs respectively at $992.10 and $21.17. In Asian and European trading, gold has consolidated near record highs and silver has been even stronger. The London AM Gold Fix at 1030 GMT this morning was at $986.25, Â£494.31 and ‚¬643.43.
With oil having surged to new record highs (at $105.95 per barrel) and with the dollar falling to new record lows against the euro (1.5346) , gold looks set to topple the symbolic and psychologically important $1000 per ounce mark in the coming days as hedging inflation and risk aversion leads to safe haven buying.
Clear signs of increasing inflationary pressure were seen on both sides of the Atlantic.
Yesterday while the ISM services data was not as bad as expected the ADP employment report showed a fall of 23,000 jobs in February which bodes badly for the non-farm payrolls report on Friday. The Beige Book hinted at stagflation and Cleveland Fed's Pianalto said the U.S. economy was 'highly vulnerable' to the credit crunch.
The chief economist for the National Association of Home Builders said Tuesday that housing is in its deepest, most rapid downswing since the Great Depression. David Seiders said that it is now affecting the entire U.S. economy where before it was regional and he said that the downward momentum on housing prices appears to be accelerating.
Stagflation looks increasingly likely and the macroeconomic barometer that is gold has sniffed this out. Indeed the only thing that seems likely to halt the likelihood of stagflation is a significant global deflationary contraction which would create demand destruction in the energy and food complex.
Ambrose Evans-Pritchard, the International Business Editor of the Telegraph remains ahead of the curve.
The Fed's emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed. Yields on two-year U.S. Treasuries plummeted to 1.63pc on Friday in a flight to safety, foretelling financial winter. The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the U.S. credit universe.
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 $20.80/20.84 at 1200GMT.
The commercial signal failure appears to be accelerating in silver.
Despite surging prices the silver open interest fell continues to fall showing that this is not a speculative bubble, rather a possible commercial signal failure where the huge and unprecedented concentrated short positions in silver are being forced to cover their shorts and buy back silver in significant volumes. We could see the commercial shorts forced to panic cover en masse creating a massive surge in the silver (and gold) price. This eventuality is looking increasingly likely, especially in the light of the very significant macroeconomic and systemic risks facing the U.S. and many western economies.
Silver has now surpassed the predicted high of most silver analysts in the world who have failed to realise the massive growing supply/demand imbalance in silver and how the humongous and unprecedented short position in silver would lead to prices being propelled to levels that may shock even silver's more bullish enthusiasts. This happens in most bull markets but will be a sight to behold in silver in the coming years.
Platinum is trading at $2225/2235 (1200GMT).
Palladium is trading at $547/553 per ounce (1200GMT).