Gold broke down from its range bound channel yesterday and quickly fell to support at $895-$900 as anticipated. Should gold fall below $900 we could again retest the support of the early April lows of $880. We expect strong support at these levels but there is a possibility that should gold close below $880 we could retest previous resistance at the 1980 nominal high of $850 per ounce.
Gold was down $15.90 to $906.20 per ounce in trading in New York yesterday and silver was down 45 cents to $17.16 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $900.75 £455.85 and €572.09 (from $916.25, £459.50 and €573.95 yesterday).
Gold should be supported by the economic data in the U.S. today which is again expected to be weak. The deeply distressed housing sector will again come under the spotlight with the release of new home sales data. Durable goods orders and the weekly jobless numbers also feature and weak numbers could put the dollar under pressure and put a floor under gold.
The dollar’s strong rally (from record highs just above 1.60 to the euro to below 1.575) has led to nervous selling by traders and speculators in the gold futures markets with short term horizons.
Physical Buyers in Asia and Internationally to Lead to Higher Gold Prices in Coming Months and Years
Physical buyers in Asia with longer term aims have emerged as buyers at these levels and Reuters reports strong physical buying throughout Asia. Main consumer India, was abuzz with activity during the wedding season and ahead of a religious festival, dealers said on Thursday as were other parts of Asia; the bullion trading cities of Hong Kong and Singapore noted steady buying from jewellers in Indonesia, Thailand and Vietnam.
Ultimately, supply and demand in the physical market will dictate the price of gold but the paper futures traders can create and exacerbate sell offs in the short term prior to the fundamental primary bull market reasserting itself.
It is worth remembering that the population of the world in 1980 was some 3.5 billion and today it is some 6 billion. Much of that growth in population has been in Asia and now there is a huge growth in the wealth of these societies.
Meanwhile the supply of gold and gold production may have peaked in 2001 and has fallen since despite the rising prices.
Thus, increasing demand in Asia and safe haven demand in the western world is being met with a falling supply of gold. Production in South Africa continues to fall with gold output in January falling 16.5% year on year. South Africa’s gold production has plummeted by some 75% since 1970 (from over 1,000 tonnes in 1970 to only 272 tonnes in 2007). Giving further credence to the theory that the world has reached the peak in gold production.
Investors should continue to focus on these ‘big picture’ fundamentals rather than the noise of hour to hour and day to day price movements. Physical supply and demand and not speculative short term movements should remain paramount in investors' minds. Investors who focus on these fundamentals will be handsomely rewarded.
Prices to Watch
$848 – Support 22nd Jan and Resistance previously 8th Nov
$893 – Rising trend support
$922 - 100 Day Moving Average
$818 - 200 Day Moving Average
$954 – Resistance from 21st Feb, 26th Mar and 17th Apr
Silver is trading at $17.02/17.07 per ounce at 1215 GMT.
Platinum is trading at $1992/2002per ounce (1215 GMT).
Palladium is trading at $440/446 per ounce (1215 GMT).