Friday, October 8, 2010

Gold strikes new record before settling, markets await key interest rate, jobs data

By Royston Wild - Fastmarkets:

London 07/10/2010 - Spot gold struck another lifetime high during Thursday morning trading on persistent inflationary fears before settling lower, as investors await key European interest rate and US jobs data this afternoon for further guidance on the direction of the global economy.

Spot gold strode to yet another record peak at $1,364.90 per ounce this morning – beating the previous summit of $1,350.10 seen yesterday - before retracing to $1,357/1,357.80, still $9.10 higher. On the charts, next resistance levels stand at $1,365 and then further out at $1,400 and $1,500, with support back at $1,320 and $1,300.

"Speculation over further quantitative easing keeps driving down the US dollar, making gold the more attractive asset class," analyst John Meyer of Fairfax said.

Inflationary fears have remained firmly in place this week, as an unexpected interest rate cut by the Bank of Japan at the beginning of the week exacerbated growing expectations of imminent quantitative easing (QE) in the US. These in turn have powered precious metals higher as a hedge against a deterioration in the value of paper currencies.

The US currency plunged to another multi-month low this morning, reaching its lowest since February 3 at 1.3994 and was last at 1.3972, still half a cent down on the day. Meanwhile the US dollar index slumped to a new low since mid-January at 77.07 before also paring losses.

With fears of growing inflation across the Atlantic showing little sign of letting up, the dollar looks set to incur further heavy losses – at least in the short term – and push interest in store-of-value assets such as precious metals.

Later today the European Central Bank (ECB) and Bank of England are due to announce their interest rate decisions which, given the strong reaction to the Bank of Japan's rate cut move by financial markets earlier this week, could prompt further volatility.

Additional volatility could follow the latest US weekly jobs release due this afternoon given the reaction to jobs data yesterday afternoon - poor September ADP employment numbers showed a fall of 39,000 last month after a rise of 10,000 in August and versus an expected increase of 23,000. This worsened the already weak dollar, as the market viewed the numbers as another indication of the need for additional QE measures in the near future.

Elsewhere, silver surged to a fresh high since March 1980 at $23.52 per ounce this morning, following gold upwards before cutting advances to $23.33/23.38, still up 19 cents.

In the platinum group metals (PGMs), palladium broke through the $600 barrier to strike a new peak since June 2001 at $603 per ounce and was last at $598/603, a $10 advance.

Platinum climbed to a new peak since May 14 at $1,725 per ounce – it was last at $1,718/1,722, still up $7.

The three industrial precious metals have benefitted from their dual-role nature as both investment and industrial assets and which, in the present environment, should keep prices bubbly over the near term, analysts said.

"Silver, platinum and palladium are still in strong demand at present," broker Commerzbank said. "The present high momentum suggests prices will continue to rise in the short term."

Also, the PGMs were given a boost by news yesterday afternoon that unionised workers at Northam Platinum's Zondereinde mine in South Africa have rejected the firm's latest wage offer and are continuing industrial action that began on September 6.

The company is losing in the region of 1,000 ounces of PGMs and gold per day because of the strike.

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