Subject: Weekly Metals Report 11/18

So far this week has revealed a vast array of economic data and global news which has truly tested the resiliency of the precious metals. The global economic climate is forcing the most seasoned Gold traders to step back and refocus their trading strategies.

Gold and Silver are considered to be “anti” U.S Dollar and normally trade inversely. However, despite the U.S Dollar’s recent rally the precious metals have maintained their value in the face of heavy pressure.

Much of the Dollars strength has come from the Euro Dollars weakness. The European Unions debt crisis continues to plague the precious metals. The crisis has turned out to much worse than originally reported. It began almost four months ago with the down grading of Greece’s credit status. The European recently pledged a multi-billion Euro to help bail-out Greece. There are several other European states who are requesting fiscal aid as well. These states include Portugal, Ireland, Italy, and Spain. This has produced heavy pressure on the Euro and Has caused investors to flee to the U.S. Dollar as a “safer haven” investment. It was reported in FOCUS (a German Magazine) that the European Union was considering using its vast Gold reserves to help support and stabilize the debt ridden states. It was also reported they were considering going to the International Monetary Fund (IMF) for a loan. This is an on-going saga that appears to far from over.

The U.S Federal Reserve announced it will keep Interest rates low for an “extended period”. Higher interest rates would give confidence to the U.S Dollar and pressure the gold.

CPI showed the cost of living remained unchanged for the month of February. This indicated the forecast for pending inflation remains low.

The Department of Labor reported the number of Americans filing for first time jobless applications dropped by 5,000. Hopefully this is an indication that companies are cutting fewer jobs and that the economy is recovering from its deepest recession since the 1930’s.

The Gold trading community is very concerned that the Peoples Bank of China will move to raise interest rates again in an effort to curb their growing inflation as well as slowing down their ever growing economy.
Another rate hike could cause the precious metals to retrace.

Gold is receiving support as well…..
The World Gold Council (WGC) reported “Global gold demand is expected to recover in 2010 after a fall last year, helped by a pick-up in jewelry demand and firm investment demand.” There is no doubt the Jewelers of India have helped support the Gold as they were very strong buyers below the $1100 level and have continued to buy on price dips. India’s Jewelers have been purchasing gold in preparation for the upcoming “AKSHAYA TRITIYA” festival on May 16th. This is a festival auspicious for the buying of gold. The WGC also expects central banks to buy gold as a monetary asset and a means to diversify reserves amid currency uncertainties. Obviously this has helped the gold remain over the $1100 level.

Russia has increased its Gold reserves from $441.3 billion on March 12th from $437.1 billion a week earlier. Currently Russia holds the third largest Gold reserves in the world.

Gold also tends to track Crude oil prices and with Crude oil trading over $80 per barrel many investors use the gold market to hedge against Crude oil led inflation.

These are exciting times in which to trade Gold.

Trade Smart…
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Mike Daly / Gold Specialist