Gold Investments Market Update
Gold was down $19.40 to $886.80 per ounce in trading in New York yesterday and silver was down 50 cents to $16.66 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $883.50, £446.51 and €566.38 (from $900.75 £455.85 and €572.09 yesterday).
Gold again fell below short term support at $900 and we are now retesting support at the early April lows of $870. We expect strong support at these levels but there is a possibility that should gold close below $880 we could retest previous resistance at the 1980 nominal high of $850 per ounce. It is important to remember that even after gold's recent sharp selloff it remains up for the year to date and up strongly for the last 52 weeks unlike major equity indices (as seen in the table).
The speculative froth has been removed from the market and the downside appears very limited from these levels. But the important adage is to "never catch a falling knife" and value investors should wait for a highly daily close prior to buying again.
While the economic data yesterday was less worse than usual, the dollar's strength and oil's weakness led to further selling in the gold market. Gold was overbought in the short term (understandably given the confluence of very bullish fundamentals driving the market) and with the dollar strengthening significantly (from above 1.60 to below 1.56 in a few days) it is not surprising that this resulted in the gold price correcting quite sharply.
Data released in the U.S. yesterday was not particularly bad, yet there can be no denying that the American consumer is under massive pressure as falling house prices eliminate the wealth effect and healthcare, gasoline and food prices soar. This should be reflected in the Michigan final Sentiment survey for April released today.
EU and International Money Supply Growth and Gold
Euro zone M3 money supply grew at a slower pace of 10.3% from the prior year in March, the European Central Bank, or ECB, indicated Friday. The growth eased from 11.3% registered in the previous month. Money supply increased less than 10.6% expected by economists. Money supply internationally continues to soar and this will remain supportive of gold due to its finite reserve currency status. Bizarrely, the U.S. stopped publishing their money supply statistics leading to worries that the recent quantative easing and bail out of banks may have led to an unprecedented surge in the money supply which will lead to even greater inflation in the coming months.
Sterling and UK GDP due Today
Sterling may come under pressure again today from the release of the key Q1 GDP data. Growth is being forecast to slow to 0.5% pace, resulting in the annualised pace pulling back to 2.6% from 2.8%.
The UK looks likely to face what is being called a "mortgage famine" as more banks follow First Direct's decision to slam the door on new borrowers. Experts fear we could be heading back to the bad old days of mortgage rationing as the worldwide credit crunch tightens. A recession in the UK looks inevitable - the question as in the U.S. is how deep and how long is the recession.
Prices to Watch
$848 - Support 22nd Jan and Resistance previously 8th Nov
$871 - Support of the April lows
$820 - 200 Day Moving Average
$954 - Resistance from 21st Feb, 26th Mar and 17th Apr
Silver is trading at $16.60/16.70 per ounce at 1200 GMT.
Platinum is trading at $1992/2002per ounce (1200 GMT).
Palladium is trading at $437/441 per ounce (1200 GMT).