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Gold

 “Bullish sentiment in the gold market”

The price of gold in the first two months of 2010 has shown strong volatility with a range of around 100 dollars. After the all time high recorded on 03/12/2009 at $1,226/oz, prices have oscillated between $1,162/oz at the end of December and $1,044/oz at the start of February. Since then prices have undergone a significant increase, reaching the current level of $1,136/oz. In previous days the resistance which stands at $1,127/oz has been overtaken, and this resistance as well as coinciding with indications of a technical nature, is also important as a significant psychological threshold. The fundamentals also provide bullish targets. The predictions of the LBMA forecasters for 2010 consider it possible that $1,394/oz may be reached. The same long term bullish vision is also expressed by the largest worldwide banks (eg Goldman Sachs, Scotia Mocatta, Deutsche-Bank). Furthermore in the last few days we have seen a consistent increase in the purchase of tons of Gold by Gold ETFs, a sign of new interest in the yellow metal. Great fear for the fate of Greece and other European countries that risk default, have brought uncertainty to all the markets, setting off a race to the “safe haven” by investors. This frenzy has produced a contraction of the inverse correlation with the Dollar, to such an extent that sessions with strong recovery of the Dollar were seen with rises of Gold at the same time. This unusual situation has provoke an increase in the price of Gold also in other currencies also; against the euro several times Gold has overcome the maximums, creating an all time high on 02/03/2010 at 837 euro/oz; that same day Gold created an all time high also against the Yen at 107,700  yen/oz and against the Pound 757 pounds/oz. This may mean that, at least short term, the depreciation or appreciation of the dollar for the moment is the least significant variable in the formation of the price of gold. As a consequence, for now the dollar component is lost as the main “mover” of the price. Obviously the climate of generalised mistrust, the difficulties of the banking system and a geopolitical situation which is still unstable, are fertile ground for the increase in demand of safe assets such as Gold. Demand is also well supported by very low real interest rates, in some cases negative, by inflation fears caused by the huge quantity of liquidity that was injected into the market and by an ailing Dollar, which especially in the United States are directing the economic decisions towards a more restrictive fiscal and monetary policy. All the money injected into the market could presumably take the price of Gold towards a historic maximum, a level at which a further reduction in demand for jewellery could take place and a potential increase in supply of Scraps. Net Long Positions at COTR have also come down from more than 30 to  around 23 Million Ounces in recent months, to then bounce back to more than 25 Million in the last week, which is confirmation of the Bullish Momentum. From a mining point of view, China confirms its leadership as the most important worldwide producer. Furthermore recent declarations by the Chinese Government that they want to purchase the remaining 191 tons of Gold from IMF, are probably the most important event on the Gold Bull market in the last 10 years. Furthermore the conquering of first place was partially helped by the continual loss of South Africa’s share of production (eg Chris Hartnady declared that the Witwatersrand mines are 95% used up, with a consequent reduction in production to under 100 tons in the next ten years). In conclusion we believe that the mid/long term tendency is still tending to bullish. Short term the strong volatility and uncertainty about the future remain the true unknowns.

Silver

 “Holds and bounces back thanks to gold”

Following the path of gold, Silver continues its long term bullish trend, after a period of strong indecision at $14.6/oz. As for all industrial metals, it has felt and feels the effects of the current economic crisis, to such an extent that currently the white metal should have a production surplus. In this context the gap can only be filled by demand from investment which in spite of the fall in 2008, remains constant, with investors that continue to bet and diversify in silver. For this year an increase in demand is expected; forecasts long term estimate an increase in prices, that possibly reach the relative top at $19.4/oz, even if short term we may see an oscillating performance, with possible low targets at $15/oz.  

Eur/Usd

 “Strong Dollar or weak Euro?”

The Dollar continues its recovery against the Euro reaching $1.364. The reasons for the recovery of the Dollar are especially to be found in the significant deterioration of the European macroeconomic situation. The news about the possible default of sovereign states such as Spain, Portugal but especially Greece, have diffused confusion and fear on the markets for the future fate of the Old Continent. The accounts of these states which are in the red have caused a correction in equity share prices and provoked a continuous and incontrovertible appreciation of the Dollar. Unemployment data is worrying and fears have been created over the balance sheet deficits of some member Countries. Apart from the European states mentioned above, rumours have come out related to the worrying economic situations of Ireland and Italy. This news has led the European currency into a deep descent, even if, for now, it would seem to have reached a good level of support. The unexpected decision of the FED has further influenced the Eur/Usd Cross, raising interest rates by a quarter of a percentage point, thereby showing a bit more faith in the future of the United States. The Obama government is trying in every possible way to ward off a second recession even if data on American unemployment do not seem to show any sign of thanks. We expect the EU to decide to help Greece and therefore we foresee, also following worries about the devaluation of the Dollar, a recovery of the European currency mid-long term.