Gold has recovered somewhat from the 1.5% loss yesterday to close at $890.60 (as did silver which was down 0.6%) and rose 1% in after hours and is trading at just below $900/oz in late morning trading in Europe.
While stock markets have had a relief rally on a return of risk appetite, the US bond market was again under pressure as was the dollar. Selling in bonds markets and of the dollar is likely to increase in the coming weeks and this should see gold look to regain the $1,000/oz mark.
Physical demand remains very robust as seen in the record sales of gold coins and bars and the surge in ETF holdings to new record highs. The US Mint’s sales of gold American Eagles (1 oz) which were some 90,000 gold coins in January just gone (January 2009) which is more than 4 times the amount bought in January 2008 (see http://www.usmint.gov/mint_programs/American_eagles/index.cfm?flash=yes&action=sales&year=2008).
Large bullion wholesalers and retailers are clearly stocking up on gold coins and bars as they fear being cleaned out of stock again as many of them were in October after the Lehman collapse. The shortages and rationing experienced then has abated but premiums remain high and supply remains tighter than it has been in previous years.
Another important development to be mindful of is the fact that the European Central Bank (ECB ) members increased their gold holdings in January.
Dow Jones reported that the Eurosystem’s reserves of gold and gold receivables increased EUR 1 million to EUR218.320 billion in the week ended Jan. 30.
The Eurosystem’s reserves of net foreign currency decreased EUR38.1 billion to EUR315 billion during the period. The ECB said cash in circulation increased EUR300 million to EUR740.3 billion. The Eurosystem consists of the Frankfurt-based ECB and the 16 euro-zone national central banks. It is believed that reflected the net purchase of gold coin by one Eurosystem central bank.
Should central banks become net buyers of gold again which seems quite likely then gold’s continuing bull market is assured.
Today markets await the ADP Employment report for January (at 8:15AM EST) expected at -515,000 and the ISM Services report for January expected at 39.0 ( at 10AM EST). Should number s disappoint to the downside, as seems possible, then we are likely to see risk aversion increase again and gold should remain very well supported at these levels.