Gold went from as low as $1,106/oz up to $1,114/oz in US trading before closing with a gain of 0.53%. It has range traded from $1,109/oz to $1,113/oz in Asian trading this morning. Gold is currently trading at $1,110/oz and in euro and GBP terms, gold is trading at €824/oz and £738/oz respectively.
While gold was only up marginally yesterday, trade continues to be more volatile than usual. Oil prices rose some 2.4% yesterday and remain firm above $82 a barrel (NYMEX), while copper jumped to an 11 week high yesterday and this should support gold. The large rise in US government bond yields seen in recent days may the start of a reevaluation of the risk free rate of return which will be favourable to gold from an asset allocation point of view.
Resistance is at $1,115/oz and there appears to be a very determined seller at this level. A breakout above $1,115/oz could see us challenge $1,130/oz in short order. Support is at $1,100/oz and $1,085/oz.
Physical demand remains robust internationally, particularly in China, as investment demand continues due to concerns about the emergence of inflation. We have seen a gradual evolution of the crisis from a financial crisis affecting banks, to an economic crisis affecting major economies and now to a fiscal crisis affecting governments internationally. The risk is now that these fiscal crises lead to an international monetary crisis. With sovereign and currency risk elevated investment demand will likely remain robust as will central bank reserve demand, particularly from China.
China is the world's sixth-largest holder of gold but is significantly behind other official holders who own substantially more gold, such as the US, the IMF, the Bundesbank and several European countries. The Chinese central bank holds far less gold than other states as a percentage of total reserves - only 1.6 percent of total reserves, which is very low by international standards. The world average is over 10%.
And this despite China having quietly and secretly increasing its reserves in recent years from 600 metric tonnes to the 1,054 metric tonnes reported in April. Rumours and speculation about Chinese buying have been rife for years, but many market participants remained in denial until this irrefutable proof was given by the People's Bank of China themselves.
China, which is the largest US treasury bonds holder, is likely continuing to diversify into gold due to the ongoing uncertainty about the future direction of the US dollar. China's total reserves are $2.4 trillion, and therefore even a small increase in its gold allocation could lead to sharply higher prices. However, the Chinese are astute and will not announce to the world on a regular basis their purchases and telegraph in advance their intent regarding purchasing gold. This would be unwise as it would lead to them having to buy gold at higher prices and could see the value of their dollar reserves fall.
Silver surged 3% yesterday and has range traded from $17.34/oz to $17.45/oz this morning in Asia. Silver is currently trading at $17.36/oz, €12.89/oz and £11.52/oz.
Platinum Group Metals
Platinum is trading at $1,630/oz and palladium is currently trading at $475/oz. Rhodium is at $2,575/oz.
European equities have given up their earlier gains despite US and Asian stock markets advancing on Tuesday. Greek government bonds were under pressure Tuesday and this may be leading to risk aversion. Markets are questioning Greece's future borrowing power after Monday's launch of a new €5 billion, seven-year bond issue.
Britain's economy came out of an 18-month recession in the fourth quarter of last year with more momentum than expected, official data showed on Tuesday. The Office for National Statistics said the economy grew 0.4% in the last three months of 2009, the first quarter of growth since the first quarter of 2008 and above analysts' expectations for an unrevised reading of 0.3%.
Foreign ministers from the Group of Eight leading industrial nations will call on the international community to take appropriate and strong steps to show its resolve over Iran's nuclear activities. A draft of the G8 final communiqué also said that the G8 remained open to dialogue with Tehran, which denies widespread western charges that it is seeking to make atomic weapons. It is the latest step in a campaign of pressure by many of the world's most powerful nations to force Iran to comply with demands from the UN Security Council and co-operate with the International Atomic Energy Agency.