This week in Gold has thus far produced a very volatile $26.50 range encompassing a high of $1104.00 and a low of $1074.50.
The Gold and Silver have been under siege for the most part due to the continued U.S. Dollar strength versus the Euro. The European Stock Markets have experienced losses do primarily to the uncertainty of the fiscal responsibilities and budget debts in Greece, Portugal, and Spain. This scenario Has weakened Euro and fueled the recent U.S Dollar momentum.
This week has also revealed the possibility of the Bank of China restricting its lending practices even further to increase its reserves as well as helping to curb pending inflation. Since Gold is considered a “safe haven” during inflationary times the raising of rates or the tightening of credit is seen as “anti’ inflationary.
President Obama has also proposed to restrict U.S Bank lending procedures which sent Bank Stocks, Wall Street, and the precious metals spiraling downward last week and the affects are still being felt in the financial industry.
As expected the Presidents “State of the Union” address covered the unemployment, housing, and health care problems we face here in America. These are very important issues that need resolving quickly. Despite our nations economic woes it is apparent our Dollar has become the currency of choice as we witness the Dollar trading stronger versus the Euro on a regular basis these days.
***NO RATE HIKE FROM FOMC***
The recent Dollar strength has continued to make Gold less appealing for hedge funds, money managers, and the investment community in general. However, the Asian sector of the world has continued its insatiable appetite for the yellow metal. It is my opinion they are buying every dip in price and are using the price of $1045.00 as a stop-loss exit. If you recall almost 3 months ago the Central bank of India purchased 200 metric tons of Bullion from the IMF at the $1045.00 level.The IMF still has 200 metric tons of Bullion for sale.
The demand for physical demand is at a frenzy pace in China. The citizens of China have truly been bitten by the Gold Bug. In the rush to own Gold it has been reported that on busy days 10,000 people pass through the doors of Caibai (the number one place to buy Gold in China) to purchase Gold. The Bank of china has 1200 metric tons of Bullion presently in its reserves. It has made a commitment to increase that amount to 10,000 metric tons over the next 10 years.
I expect the volatility to continue in the precious metals. Especially when you have rising budget deficits globally. Eventually you have to wonder if or when investors will Lose their confidence in these affected currencies and Choose a “safer haven” investment…(PRECIOUS METALS).
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Mike Daly / Gold Specialist