Gold Eyes $1430/oz as Middle East/North Africa Tensions Escalate
By Michael Wright, Currency Analyst 26 February 2011 02:03 GMT Gold extended its three week advance and now looks poised to continue its northern journey as Middle East/North Africa protests and retaliation amongst the government lead traders to seek safety, which is positive for the yellow metal. Of particular concern are the developments in Libya, and now growing concern in Iraq. As fears continue to gather pace, market participants should not rule out the bullion testing $1430/oz.
This past week, gold broke above its key resistance area of $1400 as army colonels in Libya aim to halt Mr. Qaddafi’s 42 year reign. According to Human Rights Watch, at least 300 people have been killed in the 11 days of violence and the number is expected to rise further as protests seem unlikely to calm, while Mr. Qaddafi vowed that he will fight the protests until his “last drop of blood.” The developments are worrisome not only for the fact that they look poised to gather pace, but also because protests could spread to countries like Saudi Arabia. It is important to attribute and note the recent rise in oil and gold to the possibility of protests spreading to Saudi Arabia due to the fact that the energy rich country is a key supplier of oil to countries like the U.S. Going forward, so long as tensions remain in the spotlight, contagion fears will linger and gold could witness further buying pressure as trader’s hedge against the declines in the other assets.
Meanwhile, debt fears in the 17 member euro area are deepening, adding confirmation to my bullish gold outlook. As of late, the yield on Portugal’s, Spain’s, and Greek 10 year notes are up 6bp (7.31 percent), 1bp (5.34 percent), and 4bp (11.60 percent) respectively. The increase in yields should not be overlooked alongside the increase in credit default swaps because these concerns are poised to return to top headlines in financial news soon. With regards to credit default swaps, insurance against a default in Greece stands at 944.21, marking its highest level since early January, while insurance against Spanish, Portuguese, and Irish debt extend their advance. As the troubled economy runs out of options, leaders are pushing EU leaders to adopt a new crisis measurement at its summit next month. Failure to meet market expectations will not only send the euro into a free fall, but will also lead gold to push higher.
Key events next week that will have an influence on gold prices will be the European, Canadian, and Australian Central Bank rate decision’s in addition to U.S. nonfarm payrolls. Dovish statements by policy makers paired with a dismal employment report in the world’s largest economy could lead the yellow metal higher. Taking a look at price action, market participants could witness further gains so long as downside risks remain capped by $1393/oz. -MW
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Since the founding of the US Republic over 200 years ago there have been numerous periods of gold standards. The current period of fiat currencies is not the first. But every time the world has moved to fiat currencies, it has eventually come back to a gold standard. The periods are summarized below.
1785-1861: gold standard. The founding fathers of the US were concerned about unrestrained money supply.
1862-79: fiat currency (known as Greenbacks). The shift to fiat was to accommodate the huge costs of the civil war (1860-64). A severe depression in the 1870s brought back a gold standard.
1880-1914: gold standard. A long period of monetary stability.
1915-25: floating fiat currency. A lack of gold with which to back paper currencies (brought on by the printing of money to finance WW1) brought another period of fiat currency.
1926-31: gold standard. The world pegged its currencies to the US dollar and British pound, both of which were convertible into gold.
1931-45: floating fiat currency. The global imbalances brought on by the Great Depression and WW2 took the world back to another period of fiat currencies.
1945-71: gold standard. As fixed by the Bretton Woods agreement, the world pegged itself to the US dollar which was convertible into gold at $35/ounce. In 1965 the US and Canada stopped issuing coins in silver. In 1968 the US$ was no longer convertible into silver.
15 August 1971: President Nixon took the world off the gold standard. No currency was now backed by gold.
1971-73: fixed dollar standard. The Smithsonian agreement pegged world currencies to the US dollar rather than gold, for the first time.
1973-today: floating fiat currency. The Basel Accord established the current system of floating currency rates with the US dollar as the world's reserve currency.
As the above summary shows, there is no law saying that the US dollar cannot cease to be the world's reserve currency. Nor is there any law that says the world could not go back to a gold standard. It emphasizes the importance of hedging oneself with gold.
..... Read More " The End of the US Dollars?"
LONDON, Feb 25 (Reuters) - Gold rose on Friday, headed for
its fourth consecutive week of gains, as investors kept a close
watch on the situation in Libya and the energy market.
TECHNICALS
* Gold support at $1,370 an ounce, resistance at $1,432 an
ounce and 14-day RSI at 64.
* Platinum support at $1,760 an ounce, resistance at $1,867
and 14-day RSI at 47.
* Silver support at $32.40 an ounce, resistance at $34.35
and 14-day RSI at 64.
GOLD HEDGE
Investors often buy gold as a means of protecting their
portfolios against rising inflation expectations as gold rises
in line with other asset prices, as opposed to bonds where
returns are eroded, or currencies, which lose purchasing power.
Rising inflation eventually leads to rising interest rates,
which ultimately can prove negative for gold, which bears no
yield, but when inflation threatens growth, bullion can often
offer investors the hedge they need.
The unrest across North Africa and the Middle East boosted
other perceived safe-haven assets such as the Swiss franc, which
hit a record against the dollar CHF=.
" There is no reason why we can't break through the recent
high around $1,416 and head towards $1,420 if the unrest
continues in Libya," said Darren Heathcote, head of trading at
Investec Australia.
" Of course if it spreads even further in field or becomes
more violent, gold will benefit further as a safe haven."
Investor interest in gold has not translated into inflows
into major exchange-traded products, such as the SPDR gold trust
(GLD), or ETF Securities' gold funds, since the protests in
Egypt in late January.
Yet investors have increased their holdings of COMEX gold
futures < 0#GC:> this month and until the price broke above
$1,400 an ounce this week, dealers had reported fairly healthy
consumer buying.
The rally in the last four weeks has attracted sales of
scrap into the market, which has acted as something of a
headwind for the spot gold price, dealers said.
Gold Falls From Highest Price in Seven Weeks Silver Declines
NEW YORK (Feb 24) Gold fell as the highest prices in seven weeks spur sales by some investors. Silver declined for the first time in a week.
The 14-day relative-strength index for gold topped 70 for the second straight day, a signal to some traders that the price is poised to fall. The metal slid today after touching $1,418.80 an ounce on the Comex, the highest since Jan. 3. Before today, gold climbed for seven straight sessions.
“Gold has had a nice, uninterrupted run the past week, so it’s not surprising to see a pause or some profit-taking,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.
Gold futures for April delivery fell $1.50, or 0.1 percent, to $1,412.50 at 12:10 p.m. in New York, after rising as much as 0.3 percent and dropping 0.4 percent. Before today, the price gained 28 percent in the past year, after touching a record $1,432.50 on Dec. 7.
Gold’s losses may be limited as investors seek a haven from financial turmoil in the Middle East, Zeman said
“There’s still a lot of geopolitical tension and unrest in the Middle East, so gold is going to continue to work its way higher,” he said.
Gold held in exchange-traded products rose 0.6 metric ton to 2,015.39 tons yesterday, rebounding from the lowest level since June 7, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,114.6 tons in December. Silver ETP assets advanced 61.39 tons to 14,713.45 tons, the highest level since Jan. 21, data from four providers show.
Gold, Silver set for further price appreciation
February 24 2011 13:15 GMT
By Amrita Mashar
AHMEDABAD (Commodity Online): Since reaching new highs at the end of 2010 Gold and Silver have been sold off, and the selling has been particularly intense in beginning of the year 2011. The poor news on the economy is almost completely bullish for the precious metals.
From the price action in last month one might be falsely directed to believe that investment demand for the precious metals is waning. On the contrary the data analysis is quite reveals strong indications of growing shortages and furthermore that the Gold and Silver markets are approaching tipping points that will lead to a rushing of price appreciation in coming months.
Spot Gold held on top of this week's early rise again on Wednesday, pushing back above $1400 per ounce as world equity markets fell and crude oil rose to new two-year highs as fresh anti-government protests hit the gulf state of Bahrain.
Gold rallied in the previous session closed almost one percent higher in last session as tensions rose in Libya and on expectations that tension across the Arab world may slow down economic recovery.
Demand for yellow metal as safe haven has increased in the current month as economy is witnessing turmoil on various fronts. Gold also gained on news that top metal consumer China may hike its interest rates in the near term.
Spot Gold opened higher today and traded positive during initial hours. Spot Gold rose by 0.05 percent to 1416.83 USD per ounce. Movement in Gold is now being driven by geopolitical factors.
Crisis going on in North Africa and Middle East may push yellow metal higher in the near term. Safe haven buying in white metal may also continue in the near term and the same may outperform gold.
As far as the general argument is concerned, the unrest in the Middle East is spreading and markets worldwide are pretty nervous. Fears of shortages as disorder moves across oil-producing nations drove up the price of crude in last 3 days, while other investors fled risky assets and sought the safe haven of Gold.
Gold steady below 7-week high Libya crisis aids SINGAPORE, Feb 24(Reuters) - Spot gold prices held steadyjust below a seven-week high on Thursday, as violence in Libya
continued to buoy safe-haven demand in bullion and high oil
prices, which have triggered inflation fears, also lent support.
As many as 1,000 people may have been killed in the unrest.
On Wednesday, thousands celebrated as the east broke free of the
control of Mummar Gaddafi, who has vowed to crush the revolt.
For related stories, click
" People don't have much confidence that the Libya crisis
will be settled any time soon, so a lot of them are betting on
gold," said a dealer in Singapore, " Gold will be king."
Crude oil prices hit a 2-1/2-year high on mounting fears
that unrest in Libya could spread to other major Middle East
producers, including top exporter Saudi Arabia.
Soaring oil prices raised concerns of higher inflation and
slower economic growth globally, which might also lead to some
gold buying.
Spot gold edged down 0.2 percent at $1,408.96 an
ounce by 0634 GMT, off the seven-week high of $1,416.30 hit in
the previous session.
U.S. gold futures inched down 0.3 percent at $1,410.
Spot gold will test the Jan. 3 high at $1,423.57 per
ounce, based on its wave pattern and a Fibonacci projection
analysis, said Reuters market analyst Wang Tao.
" There is no reason why we can't break through the recent
high around $1,416 and head towards $1,420 if the unrest
continues in Libya," said Darren Heathcote, head of trading at
Investec Australia.
" Of course if it spreads even further in field or becomes
more violent, gold will benefit further as a safe haven."
Scrap sellers have taken advantage of current high price
levels to cash in, while fresh buying was limited, dealers said.
Spot gold rose in seven out of past nine sessions, up nearly
eight percent since it hit a four-month low of $1,308 on Jan 28.
" Prices are getting more dear, and some may take the
opportunity to sell then wait for the next dip to buy again,"
said the Singapore-based dealer.
Spot silver inched up 0.1 percent at $33.54.
Holdings in the world's largest silver-backed
exchange-traded fund, iShares Silver Trust , rose to
one-month high of 10,575.23 tonnes by Feb 23.
Silver prices are expected to stay at three-decade highs
even as new mine output of silver is forecast to rise eight
percent on the year, keeping up with growing demand, metals
consultancy GFMS said.
Spot palladium reversed early gains to inch down 0.3
percent at $774.47, headed for a third consecutive session of
loss. It hit a six-week low of $762.85 in the previous session.
Precious metals prices 0634 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1408.96 -2.56 -0.18 -0.74
Spot Silver 33.54 0.03 +0.09 8.68
SINGAPORE, Feb 24(Reuters) - Spot gold edged up on Thursday,
as spreading turmoil in Libya and soaring oil prices stoked
worry of slower economic growth and continued to drive investors
seeking safe-haven to bullion.
FUNDAMENTALS
* Spot gold edged up 0.1 percent at $1,413.35 an
ounce by 0037 GMT, after hitting a seven-week high of $1,416.30
in the previous session.
* The most-active U.S. gold futures contract was
steady at $1,413.9.
* U.S. crude oil futures rose more than $1 on mounting fears
that growing unrest in Libya could spread to other oil producers
in the Middle East and North Africa. The turmoil in Libya
continued as thousands of Libyans celebrated the liberation of
their country's east from the rule of Muammar Gaddafi, who has
vowed to crush the revolt. The rising fear of tribal conflicts
and civil war sent oil prices to their highest since August
2008.
* Spot silver inched up 0.2 percent at $33.59.
* Holdings in the world's largest silver-backed
exchange-traded fund, iShares Silver Trust , rose to
one-month high of 10,575.23 tonnes by Feb 23.
* Strong industrial and investment demand, coupled with
mining companies' need to borrow the metal for hedge programs
have led to a squeeze in physical silver market recently, but
there was no cause for concern about supply shortages, said
metals consultancy GFMS.
MARKET NEWS
* The dollar index edged down to a three-week low on
Thursday, as the safe-haven demand triggered by the crisis in
Libya drove investors to the Swiss franc while the greenback
appeared to lose its luster.
* U.S. stocks dropped for a second straight session on
Wednesday as Libya's violence sent oil prices up briefly to $100
a barrel and tech shares sank, adding credence to calls for a
market correction.
* The U.S. crude front-month contract for April delivery
was trading at $99.10 by 2354 GMT, up $1 from the
previous session. In London ICE Brent for April delivery
settled at $111.25 a barrel in the previous session, the highest
close since Aug. 29, 2008 for front-month Brent crude, when
prices ended at $114.05.
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