Gold and silver closed higher yesterday (+0.45% and +0.65%) after S&P, somewhat belatedly, cut its outlook for the US from stable to negative. While the move seemed to surprise some, many market participants have been warning that this was inevitable for some time.
Gold in US Dollars: 3-Day (Tick)
Despite somewhat sensationalist reporting, gold did not surge, nor did equities plummet. However, both acted as they are expected to with more risky equities selling off internationally and safe haven gold rising marginally in all currencies. Gold was particularly strong in euros due to eurozone contagion fears and rose from €1,035/oz to over €1,050/oz.
Gold in Euros: 30-Days (Tick)
In dollar terms, soon after rising nearly $20 per ounce, gold gave up the gains with very determined selling seen at the $1,500/oz level. $1,500/oz will likely be reached in the coming days and the question is do we see profit taking and a correction at this level or does gold surprise most market participants again by continuing to rise to the $1,600/oz level.
The real high or inflation adjusted high of $2,400/oz remains a long term price target that seems increasingly inevitable, given the disastrous fiscal position of the US and equally poor fiscal positions of many other major western economies .
Dollar Index: 40-Year (Quarterly)
Technically and fundamentally, the dollar looks vulnerable to falling to the record low of 71.8 (on US Dollar Index) that will see increased concerns about the reserve currency status of the dollar and further inflationary pressures which will be bullish for gold and silver.
The risks posed to the dollar come at a time of a high level of risk confronting all major currencies, the dollar, the yen, the euro and the pound, and these risks with the threat of inflation will inevitably lead to higher interest rates.
Rising interest rates will be bullish for gold as they were in the 1970s. It is likely only when real interest rates are positive and guarantee a return over the rate of inflation (and taxes) that gold's bull market will be threatened.
Gold is trading at $1,493.83/oz, €1,046.91/oz and £916.46/oz.
Silver is trading at $43.16/oz, €30.25/oz and £26.48/oz.
Platinum Group Metals
Platinum is trading at $1,781.50/oz, palladium at $737/oz and rhodium at $2,275/oz.