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GOLD

“Gold on the rise again following January’s sell-offs"

In January Gold began a deep corrective phase until it reached 1308 dollars per ounce, having ended the year just above 1420 dollars. This fall was driven by a combination of long liquidations at Comex, coupled with widespread sales on various ETFs that conspicuously lowered the overall gold held in the various trusts (- 4.5% equalling around 100 tons). Sales were stimulated by a widespread sense of optimism on the market, in the wake of American macro data that beat expectations, which at leastv temporarily shifted the risk lever upwards, thereby rewarding equity prices. Since then however the metal has begun a slow but constant price rise, up to reaching the new price of 1,400 dollars, as we write. In our opinion however the dynamic of the rise seen at the end of January was different to those seen in the recent past: in fact net reduction in volatility can be noted and at the same time a certain weakening of the inverse relationship with the performance of the dollar. The interruption of the corrective phase, which many operators expected to be deeper, is probably linked to the geopolitical events which are still characterizing countries in the Middle East and North Africa: not so much the single episode in Tunisia, but more the revolts which flared up first in Egypt and then gradually in other countries too, in an escalation of tension for which as yet there is no solution. These events probably prevented gold from continuing with its corrective trend in the presence in any case of sustained demand for industry and investment; the former especially from China and India (+47% demand for goldsmithery in 2010 compared to the previous year) and the latter, originating again
in Asia, allowed the metal to regain ground and to return to the maximums of the end of the year. We are witnessing however a phase of weariness in ETF investments; in the last two weeks, in correspondence with the new price rise investors have probably preferred other forms of investment to ETF, contributing only marginally to the recovery of the price of gold. Another sustaining element is the worry over growing inflation; even if in Europe and in the United States there are no warning signs as yet, China has carried out three increases in taxes in the last 4 months, the latest on 17th February, in an attempt to put a break on prices, that are driven by an economy which by now grows steadily by around 10% per year. With this premise, we believe that the corrective phase seen in January is now over and that the target for gold now is a new test of the historic maximums in the 1,420 area, a level which should at least temporarily provide a certain amount of resistance, as it has already provided in the recent past.

SILVER

“Silver: at its highest post-1980”

Silver never ceases to amaze and rises at an impressive pace, totally out of line with the performance of gold and the so-called PGM metals (Platinum Group Metals). Inflation fever and expectations of strong growth in the worldwide economy create a deadly cocktail, a price propellant for the white metal which at present cannot find a continuity solution. In spite of the significant outflows from ETFs, probably linked to profit taking following the rally of the last quarter 2010, the price of silver has grown so much that it has taken the gold/silver relationship to relationship to 41, the minimum for the last three years. The rise in the price of silver is therefore led by industrial demand especially from Asiatic countries but also from the ‘old economies’ which are showing signs of recovery even at a manufacturing level. The fact that the price grows exponentially compared to the rest of the compartment, means that the risk is even more alive of similarly violent profit taking, as occurred in January when a correction of around 8% of gold, contrasted against the almost double correction (from 31.30 to 26.45 dollars, - 15.5%) of the price of silver.

EUR/USD

“Dollar stable against the euro, FED optimistic”

From a reading of the minutes of the FOMC (copy of the Board of the FED) there is confirmation of the continuation of a scenario of economic growth which is also reflected positively on the growth expectations for the American GDP for the next two years. The Fed is particularly optimistic, trusting in the continuation of positive macro indications, estimating that at the end of 2011 the American GDP will be in a growth range of between 3.4% and 3.9% (compared to that of November 3% - 3.6%) but downsizing estimations for 2012 slightly. Particular attention however is placed on inflation and employment. The former, is seen to be more or less stable and at present the price increases of raw materials do not give cause for worry for any knock-on effects they may have (USA annualized inflation at the moment stands at 1.6%). Regarding the latter, the inflation rate fell surprisingly in January to 9.0% (from previous 9.4%) in spite of the fact that in January the American economy only gained 36 thousand new employees; the macroscopic fall in the employment rate could be due to a temporary situationand may be revised as soon as next month. It is precisely employment dynamics which are a priority for the FED to follow: for this year it estimates an unemployment rate of 9.3% while in 2012 it should fall to 8.6%. In the light of early macro-economic indicators, even though the measures to stimulate the American economy are still in place, the future on FED Funds is taking for granted a possible rise in taxes by the end of the year of around 50%. If the FED is "optimistic" the ECB is rather less so, both in the more conservative nature of its statements and the intervention policies on the economy, especially and not without reason on the issues related to the sovereign debt of some countries in the Euro area. The ECB is obviously committed on one hand to checking the stability of the accounts of the Eurozone countries and on the other
to monitoring inflation effects which seem to be showing themselves more than in the United States; in January the annualized inflation rate moved to 2.4% well above the target threshold pursued by the ECB (2%). In this scenario the equity markets remain at theirhighest, thanks to the considerations of the FED and to the M&A fervour (mergers and acquisitions) which provide support for market prices. In particular the fusion of Deutsche Borse and the NYSE (New York Stock Exchange) has been announced which will thereby become the largest Stock Exchange worldwide. Finally, while waiting for new developments on the economic-financial front of the two areas, short term it is possible to expect the continuation of the consolidation between 1.34 and 1.38 of the cross, which has now been underway for more than 1 month.