Gold
Gold has traded sideways to slightly down in Asian and early trading in London this morning. Gold was down 30 cents to $948.80 per ounce in trading in New York yesterday while silver was up 17 cents to $18.49 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $944.50, £473.05 €598.28 (from $948.25, £470.60 and €600.31 yesterday). Thus, while gold was slightly down in euro and dollars it was stronger in pounds with the pound weakening on the deteriorating UK outlook (more below).

Gold is in a range between $905 and $955 and may look to consolidate at these levels. The fact that it continues to probe the higher end of this range suggests that the path of least resistance is to the upside. This is especially the case due to the litany of bad economic news from both sides of the Atlantic. The economic data in the U.S. yesterday was neutral at best with weekly jobless claims uninspiring and Q4 GDP falling to a sluggish 0.6%. The final GDP report also contained the first estimates of corporate profits for the fourth quarter. They fell 3.3%, down for the second straight quarter.

Today, the Commerce Department releases its February report on consumer incomes and spending, which should help gauge how well or ill the economy is faring in the current quarter. Even more important will likely be the University of Michigan Survey of consumer sentiment for March. If it shows further deterioration then the dollar will again come under pressure and gold will likely show strength.

The U.S. consumer accounts for 70% of the U.S. economy and consumer spending is under serious pressure from a weakening labour market, ongoing carnage in the housing industry, and massively indebted household balance sheets.

Similar issues are confronting the UK economy. The UK housing market continues to fall and consumer confidence has fallen to its lowest level in 15 years. The embattled Lehman Brothers have issued a report on the UK economy entitled the 'Downward Spiral' in which they estimate the chances of a UK recession at being 35%. We have said that a consumer and property driven UK recession was inevitable since 2005. Lehman Brothers say the prospects for the UK economy look particularly bleak for the next two years - and perhaps beyond.

UK credit markets continue to show signs of seizing up with the LIBOR rate above 6% and continuing to reach new record highs. The FT reports that the credit crunch yesterday forced three of the UK's biggest lenders to tighten up the supply of home loans and charge more for them in moves that are likely to put further pressure on the property market. Millions of home loan borrowers now face higher interest rates as banks pass on higher wholesale funding costs as conditions worsen in money markets.

A recession has clearly arrived in the U.S. (and will likely soon reach the UK) - the question is how deep the recession becomes and whether a recession leads to a 1990s style Japanese deflationary recession, a 1930s style deflationary crash and depression or a 1920s style German hyperinflation or most likely a severe 1970s style stagflation with a combination of sharply falling asset prices and economic growth with competitive currency devaluations and severe inflation in the price of essential goods such as food and energy.

Gold's Performance as a Safe Haven Asset
An example of gold's historic role as a safe haven asset is seen in the following data. The industry performance of Physical Gold Versus the S&P 500 during eleven stock market declines of 15% or more in the Post-War period (since 1946).

Some exposure to gold should be included in all diversified portfolios. In the same way that every major Central Bank in the world continues to maintain huge reserves of gold bullion in order to help prevent systemic or monetary crisis, so too should private investors and institutions invest, save and own gold. A good rule of thumb would be a minimum allocation of around 10% to gold and related gold-investments. The wise old Wall Street saying - "Put ten percent of your money in gold and hope it doesn't work", is particularly applicable in today's fast changing and increasingly uncertain macroeconomic, financial and geopolitical world.

Support and Resistance
Gold's support is now between $900 and $906 and below that strong support is at previous resistance at the 1980 record nominal high of $860. Resistance is at the recent new record nominal high of $1030.80 and $1000.

Silver
Silver is trading at $18.35/18.42 at 1100GMT.

PGMs
Platinum is trading at $2030/2040 (1100 GMT).
Palladium is trading at $446/452 per ounce (1100GMT).