Gold Investments Market Update – 20/03/2008

Gold Investments Market Update

Gold
Gold was down $59 to $942 per ounce in trading in New York yesterday while silver was down 1.50 cents to $18.49 per ounce. Gold has continued to sell off in Asian trading and again in trading in London this morning.

Gold also sold off in other currencies but not by as much as the dollar strengthened against most major currencies. The London AM Gold Fix at 1030 GMT this morning was at $913.50, £461.60 €591.15 (from $995.25, £497.376 and €632.146 yesterday).

It is difficult to know what precipitated the severity of the sell off as there is no change in the long term fundamentals driving the gold market. However, with the dollar strengthening and oil and other commodities declining sharply yesterday, gold was bound to come under pressure. Agricultural commodities fell by even more with some off more than 7% on fears of a global recession or depression and the more than likely demand destruction for soft commodities that would lead to.

Triple witching is today and that may have contributed to the increased volatility and the sell off in gold and other markets. (Triple witching is when the contracts on stock index futures and options along with individual stock options all expire on the same day and happens four times a year). Triple witching usually adds more activity to the marketplace because traders and hedge funds often with short term horizons (sometimes incredibly so) have to close out their positions before the deadline.

Hedge funds and other speculative institutional players with short term horizons have likely exacerbated the sell off in the futures market as they continue to focus on short term profits rather than the long term fundamentals of the gold and precious metal markets. Mindless black box computer models with no concept of intrinsic value and which automatically sell on breaching certain support levels have definitely intensified the sell off.

Also the huge commercial shorts were suffering billions in losses after gold and silver’s recent surge in price and there can be little doubt that it was in their interest that there be a sharp sell off in order that they stop hemorrhaging on their short positions and in order to allow them to cover and buy back their short positions at far lower levels. This will likely be seen in the coming days.

This is a speculative futures driven sell off and physical buyers of gold and silver for diversification benefits have not been selling indeed many market timers with medium to long term outlooks are now coming into the marketplace and buying into the sharp sell off. The Commitment of Traders (COT) report only report up until Tuesday and therefore we will not be able to see whether this was manipulation next Friday.

It would be wise not to be seduced by short term movements in markets and continue to focus on the all important macroeconomic ‘big picture’ which remains poor and extremely uncertain.

Nothing whatsoever has changed in the gold market and this sell off will be seen as another sharp correction in a multiyear secular bull market. The only thing likely to lead to a fall in gold prices in a massive global depression and deflationary crash which would result in stocks and property and banks being routed. In this scenario, gold could possibly fall in value but by a lot less than other assets. This scenario is unlikely given the Federal Reserve’s profligate and unprecedented use of the printing presses and the risk posed by the $516 trillion dollars of derivatives (financial weapons of mass destruction as Warren Buffett has called them) in the shadow banking system.

This is another buying opportunity for gold and particularly silver.

Support and Resistance
Gold breached support between $960 and $970 and support is now at $900, $885 and previous resistance at the 1980 record nominal high of $860. Resistance is at the recent new record nominal high of $ $1030.80 and $1000.

Silver
Silver is trading at $17.24/17.29 at 1300GMT.

PGMs
Platinum is trading at $1811/1816 (1300GMT).
Palladium is trading at $423/428 per ounce (1300GMT).

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors’ interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.

We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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