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GOLD

“Two speed demand, investment ok, industrial gold breathes easy”

The summer period which is drawing to an end has been characterized by two profoundly different phases which have seen gold first of all undergo a strong correction from the maximums of the year, falling to 1,155 from 1,265 dollars to then move to 1,244 dollars with a decline which was even stronger in terms of euro per ounce (max 1,026 min. 886 euro). The two performances once again show that the gold market is extremely sensitive to sudden changes in the macro- economic and financial scenario; after the growing turbulences of the start of the summer, which culminated in the Greek crisis and the consequent declassing of the sovereign credit, despite the fact that other Countries such as Spain, Ireland, and Portugal were under observation, a generalized climate of trust, sustained by positive data on the growth in USA and in Germany, had pushed operators to abandon prudence, and to increase the risk level of investments. This explains the metal sales seen at the end of July not just on volatile markets such as futures, but also surprisingly in the ETF compartment, instruments which are usually used by those who invest with a long term view and are therefore normally more stable. Even though it is temporary, an aggregate reduction of around 40 T. is certainly an element of interest, not due to the size of the liquidation which is marginal in any case, but due to the fact that it could be the first sign that in sustainable market conditions, operators could be inclined to increase the level of risk. It is obviously premature to speak of a new market phase; the fragility of the market and a still uncertain scenario for the future do not lead us to hypothesize a change in attitude towards gold as a short term refuge investment; in fact there are many variables that play in gold’s favour such as interest rates close to zero, inflation risks (even if not short term) and the dollar which in any case is weak, excluding performances against the euro. Demand for investment, even if at a slightly reduced rate, is still high in various sectors and intensifies in periods of crisis. Industrial demand and especially that of goldsmithery on the contrary suffers from the effect of the price rise, with the exception of China, which continues its growth trend and which has recently opened the doors of the local gold market to banks and foreign operators to encourage trading, as the demand/supply deficit is now quite close. In India, due to the high internal price in terms of Rupee/gold, importations in August (15 T.) slumped by more than 50% compared to the same month in 2009 (32 T.), despite the fact that the marriage and festival season is round the corner; this figure however is not surprising if we analyse it in the light of the decline in importations which has taken place all through 2010. Given the above we believe that the price can remain high even for the next few months without ruling out a possible test of the maximums, should the proposed hypotheses to intervene in support the economy be carried out concretely.

 SILVER

“Silver on the rise divided between investment and industrial demand”

Silver has benefitted in recent months from its double status as precious and industrial metal; on one hand the uncertainties on markets rewards silver as an alternative investment, as shown in the last few months by the increase in demand for silver ETF (there are currently 12.700 T. in stock), on the other hand the recovery of the last few quarters while being uncertain, sustains growing industrial demand, especially in some sectors such as the photovoltaic  sector and, in spite of the high price of the raw material, in the goldsmithery production sector which also benefits from the switch with jewels in gold. The fundamentals reinforce therefore a positive market view, even if this metal is burdened down by the typical high volatility of the price and the substitution risk with prices above 20-22 dollars.

 EUR/USD

“ Fed ready to stimulate recovery”

The dollar and especially the American economy are under special observation in recent days, in the light of the latest macroeconomic indications which hint at a slowdown in growth in the 2nd quarter 2010 below the initial estimations of the FED. Estimations of the 2nd quarter GDP see an increase of 1.6 %, downsized from an initial 2.4% and 3.7% of the 1st quarter. Other indicators also confirm the weakness of the recovery: the statistic on sales of existing houses has shown -27.2%, the worst in 15 years which on Tuesday 24th August contributed to depressing the stock exchanges, rewarding precious metals and the euro. In spite of the weak data (even consumer trust is down slightly at 68.9 from 69.6) an optimistic reading of Bernanke’s words contributed to bring serenity back to the market; the half-full glass policy has certainly prevailed considering that the Governor of the FED stated that "the United States economy has slowed down more than expected " and that its relaunch is "far from being reached". The market however favourably interpreted further declarations from Bernanke in which he confirms the commitment of the FED to sustaining the economy, to defend it from inflation or should there be further reductions in demand, from deflation, through "even unconventional measures". Even in Europe cautious optimism seems to prevail; numbers of industrial orders are up by 2.5% in Europe, but the real economic steam engine is Germany which shows an increase in the GDP in the 2nd quarter of 2.1% with an annual tendency of 3.7% in which, among other items, exports stand out as increasing strongly. Finally also the IFO index (which indicates the rate of economic development in Germany) surprisingly comes out above operator’s estimations, confirming a current solid trend in the German economy. We would like to point out, lastly , that in spite of the downgrade of the Irish sovereign debt by S&P, Dublin managed to successfully set up an auction for 600 million government bonds. With this premise, we believe that the dollar, in spite of the cautious optimism of recent sessions, is still weak especially against non euro currencies. If the Euro area should show a certain amount of growth continuity then we cannot rule out that  short-mid term a new phase of weakness could occur for the dollar even against the euro, with targets in the 1.33 area.