Gold Falls Sharply

August 13, 2008 | By | 1 Reply More

We made a stupid mistake last week by forgetting that the stock market rarely responds to rational thinking. As a result gold fell very sharply.

On the basis that the US economy is looking to get sicker as each month goes by, that the dollar is arguably no stronger a currency than the Euro and certainly weaker than most other leading currency, sterling excepted.

 

That no end is in sight to the wars in Iraq and Afghanistan with Iran still on the sidelines, and last but not least, the renewal of active military involvement in its neighbors by Russia and the consequent threat to oil and gas supplies, logic would dictate that both gold and oil would rebound.

That was not to be as Mr Market had the last laugh yet again.

There are signs that Tuesdays New York spot gold price close at $814.60 and Wednesdays European early morning trading at $820-$824 may indicate that the correction stage is petering out.

Encouraging to see that it very quickly backed off the $801.90 low, last hit in December during a brief dollar rally, to regain $805 which may prove to be solid support.

The current mood of the markets is virtually impossible to gauge as bulls and bears fight it out with victory passing between the two on almost a daily basis.

Our best guess is that $805 will hold for the rest of the summer, but if it is breached then $750 will be the next stop and will be reached very quickly. Let us not forget the pain of gold futures dropping over $100 an ounce in the two weeks from the end of July.

We are still very confident that gold and silver will break into substantial new highs by the turn of the year. Both enjoy demand outstripping supply with perhaps silver being even better placed in the longer term than gold.

Elsewhere Platinum is still in the doldrums with no apparent buying activity from the automobile manufacturers yet evident.

With quoted spreads up to $20, dealers are showing their nervousness but there are some that think that the $1462 an ounce, an eight month low, touched on Tuesday may prove a bottom.

Bearing in mind that platinum production is decreasing and likely to stay that way until 2010, while, to date, demand has outstripped supply the fall seems overdone.

Our understanding is that as auto manufacturing slows down in the west so China and India are more than taking up the slack. The BRIC economies do not look likely to experience a drop in demand for new cars just because the US and Europe face recession

Platinum, Palladium and Rhodium essential for catalytic converter exhaust systems look a good buy at these prices particularly when, and not if, the auto manufacturers start stocking up.

The only possible cloud on the horizon is if a low polluting exhaust system using cheaper materials is developed. We understand that scientists and engineers are working on this but, as yet, any new technology is some years away.

Cameco Corporation, the world’s largest uranium producer, has bought a 70% stake in Rio Tinto´s Western Australias` Kintyre uranium exploration project in partnership with Mitsubishi Development who have taken up the remaining 30%.

The price is reported as being $495 million. Encouraging to note that Cameco has such confidence in the long-term outlook for the yellow cake.

 

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