Gold & Silver Higher as Eurozone Downgrades

Gold and, particularly, silver are higher in European trading, especially in Japanese yen, which has come under pressure again today. The initial "repatriation funds" yen rally in the days after the natural and nuclear disaster has abated.

Gold is again close to record nominal highs in yen (119,000/oz) and other currencies. The outlook for the yen is not good due to massive fiscal and demographic challenges, zero percent interest rates and ongoing currency debasement – none of which will be helped by the nuclear disaster.

Risk appetite remains high with investors buying equities and shrugging off considerable geopolitical and sovereign debt risk. The downgrades of Portugal and Greece have led to new record high 10-year bond yields for both – at over 8.02% and 12.73% respectively.

Gold is supported at $1,410/oz and at $1,380/oz and €995/oz. A close above the record nominal high of $1,447.82/oz would likely see gold rise to psychological resistance of $1,500/oz in short order.


Gold in US Dollars - 17 February 2010 - 30 March 2011 (Tick)

Gold commenced 2011 at $1,420.78/oz and with two days of trading left in the first quarter, gold is marginally higher at $1,420/oz. It is therefore flat for the quarter after another quarter of correction and consolidation.

A lower quarterly close would be the first lower quarterly close in nine quarters. This may be beneficial to some of those short the gold market who may be attempting to "paint the tape" and engineer a lower quarterly close – in the forlorn hope that this could lead to momentum selling by trend, following hedge funds and traders.

A lower quarterly close may be achieved but the fundamentals of anemic supply and continuing strong demand both from the investment sector, but also from the jewelry and industrial sectors (dental and electronics primarily) internationally, and particularly in China and Asia in general will likely see gold continue to rise in 2011.

Gold in US Dollar - 1 January 2010 - 30 March 2011 (Daily)

Interestingly, March 2010 and the first quarter last year (see chart above), also saw gold flatline prior to strong gains in April and the second quarter of 2010 (Q2 10). Gold rose by nearly 6% last April and by nearly 12% in the quarter.

The unresolved eurozone debt crisis and the emergence of the Japanese natural and nuclear disasters and geopolitical risk in oil producing nations means that the fundamentals today are as sound as they were in 2010 – if not more sound.

Bearish predictions that higher gold prices would lead to sharp falls in industrial and jewelry demand are being proven wrong as seen in the figures released by the CPM group this morning (see news).