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Published by: Marian Rusnak on Oct 06, 2011
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22nd August 2011

• • •
More talk of QE3 Lack of action to tackle debt Dollar looking weak again

• • •
Build-up of shorts in gold Equities weak, possible dash for cash No QE3 announcement is made

Short Term Medium Term Long Term Challenge Consolidate Extend gains $1,900-2,000 $1,780-1,820 Above $2,000

Last Week: • Gold started in orderly fashion on Monday in two-way trading following the previous week’s volatile price flows but buying interest returned during US trading after data showed a decline in manufacturing activity in the New York area and weak demand from foreign investors for US long-term assets. • The metal tested back to $1,770 per ounce in after-market trade, bolstered by intervention by the Swiss National Bank to halt the appreciation of the franc, and continued to gain ground on Tuesday. It touched $1,788 after more disappointing data (eurozone flash GDP and US housing) and a negative reaction to the meeting between French President Nicholas Sarkozy and German Chancellor Angela Merkel. Although that summit resulted in a proposed tax on financial transactions and closer joint governance of economic policy, no agreement was reached on increasing the eurozone bailout fund or the selling of eurozone bonds. • News on Wednesday that Venezuela was planning to nationalise its gold industry and rehouse its official holdings within its own central bank kept gold underpinned before it cleared $1,800 on Thursday and continued to fresh highs after data revealed a dramatic drop in the Philly Fed Manufacturing Index to -30.7 from 3.2 and a slowdown in existing home sales. • Economic jitters pushed gold to a record $1,878.75 during Friday's European trading before paring gains to close the week up 6.3 percent around $1,850. Silver finished the week with a nine-percent gain, having hit a threemonth peak of $42.95 per ounce during electronic trading late on Friday. • Monday marked the 40th anniversary of President Richard Nixon's announcement that the US would abandon the gold standard, dropping the $35-per-ounce peg and allowing the dollar to float freely. • Gold hit new lifetime highs in other currency denominations last week including the euro, sterling, the Canadian dollar, the Swiss franc and the rupee. • SPDR ETF gold holdings rose 30.5 tonnes last week. Retail interest remained brisk, with the US Mint reporting Eagle sales totalling 83,000 ounces of gold and 2.13 million ounces of silver in the month to date.

The Week in Numbers NYSE Liffe US Gold Oct Mon 15 Tue 16 Wed 17 High 1745.70 1785.50 1794.60 Low 1736.30 1760.60 1783.70 Close 1757.10 1783.60 1792.50 Silver Sep High 39.690 40.091 40.580 Low 38.884 39.325 39.800 Close 39.363 39.837 40.351 * week's high, week's low & change on week

Week* Thu 18 Fri 19 1828.00 1876.20 1876.20 1794.30 1830.00 1736.30 1820.40 1850.50 109.30 40.789 40.120 40.684 42.519 41.245 42.391 42.519 38.884 3.277

Week Ahead: The Federal Reserve signalled at last year’s Jackson Hole symposium that it was considering the second phase of quantitative easing (QE2), which started a strong run-up in asset prices. That set a precedent – the market expects chairman Ben Bernanke to lay out a range of policies at this week’s symposium intended to bolster the ailing US economy. Prior to Bernanke’s speech on Friday, the market will get further insight into the state of the global economy via various economic data (see table on right). With growth forecasts for many advanced nations being lowered, this data could have a serious impact on markets. Bullion will be driven by three factors this week: economic data, EU debt developments and Bernanke’s Jackson Hole speech. Negative data could well be supportive for gold in the run-up to Friday. Bullion could correct if Bernanke fails to hint at further QE but indications of further easing could well push prices towards $2,000.

df Researched and Analysed by E-Mail: press@thebulliondesk.com

615.475 and $1. The momentum indicators are positive but both appear vulnerable to rolling over. Despite the record gold price in US dollars. We are bullish in the medium-to-long term. Upside resistance remains at the psychologically important levels of $1. chief investment officer of equities at Calvert Investment Management df Researched and Analysed by E-Mail: press@thebulliondesk.704 and the long-term up channel at $1. Trader Talk: “What I'm seeing right now is basically a crisis of confidence. a slower pace compared with the 122.550.8% Fibo level at $43. Purchases from various central banks also resulted in a net 69.13.FOCUS – Gold underpinned by fundamentals. Silver is well supported by the small up channel at $1.5 billion.27-$41. Technical Analysis – Silver Silver closed positively last week. Gold has rallied strongly in recent weeks while equities have soured on growing growth concerns but the accompanying chart highlights some interesting developments between two industrial commodities –silver and oil. silver has been keeping pace with gold while retail investors seek the metal as a cheaper alternative.45-$41. we wonder whether silver might consolidate or correct slightly lower before resuming its upward path.925-$1.89 and resistance at $44.781-1. In the short term. The rise in the gold/oil ratio reflects lower demand expectations while US and eurozone debt problems undermine economic activity. having dipped below 44:1. The metal has retraced lower so far this week and is now trying to consolidate around the 61. The stochastics are positive but look vulnerable and the RSI is neutral positive. could test the bottom of the previous 1:39-42 range. While silver is still trading inside the long term bullish up channel of $45. suggesting a rally back towards $47 per ounce.575 per ounce on May 2 before consolidating in a broad range between $1.950-$2. we feel that silver is overbought but such scenarios can become very overstretched in genuine bull markets. Jewellery-related purchases rose 17 percent year on year in both countries while coin and bar sales increased 44 percent in China and 78 percent in India despite local prices rising four percent and five percent respectively. it is understandable that silver is consolidating on last week’s close but the fact it has gapped higher and had to retrace lower suggests a lack of follow-through buying. Given last week’s gains.12. the second highest quarter on record. despite its industrial demand base. In the short term. Indian and Chinese growth was particular strong – rising middle-class wealth.07 (50%). inflation and festival purchases prompted buying interest. forming it largest green candle since the week of April 18. It closed well over the top of the Bollinger bands for a second week last week. however. Supplies into the market also declined year on year although there was a sharp 20-percent quarter-on-quarter rise when the new highs in gold triggered an influx of scrap sales.52 (UTL). $40.6981. demand on a dollar basis grew to $44. So while we believe a correction is overdue. The second-quarter data and more recent statistics describe a bullish price environment for gold.62-$45. Technical Analysis – Gold Gold closed bullishly last week for the seventh consecutive week. gold/silver ratio supportive for silver The World Gold Council published last week its latest Gold Demand Trends report for the second quarter when gold initially rallied to what was then a record $1.9 tonnes added between January and March. with the market driven by strong investment demand that is outpacing moderate supply increases. the report showed a five-percent quarter-on-quarter decline in total demand in volume terms and a 17-percent year-on-year decline. Silver has support at $42.000.com . Recycled flows were up 22 percent in addition to primary production but this was partially offset by approximately 10 tonnes of producer-related buying for dehedging after being net hedgers during the first quarter.900-$1. raising the short-term prospects of a reversal. indicating the metal is technically overbought. The silver/gold ratio. we remain positive in the medium-to-long term. we will remain positive in the short term until the stochastics cross and break lower. But while the rising price affected tonnage off-take in that period.4tonne rise in officials holdings.52-38. meanwhile. more so than an economic crisis or financial crisis necessarily at this stage" – Natalie Trunow. The metal has support from the 5 WMA and the 20 WMA.

This suggests that the market is waiting to see whether the US embarks on another round of policy that will ultimately debase the currency further. the ratio may fall further.487 contracts as new shorts outweighed new longs. So silver seems to be embarking on a game of catch-up once again. raising the gold/silver ratio. more longs entered the market. Perhaps the unease in gold will see some rotation from gold to silver. will another tranche of quantitative easing (QE3) follow? ETF investors started to take profits two weeks ago but last week they bought afresh. df Researched and Analysed by E-Mail: press@thebulliondesk. The run-up in gold prices had left silver behind. If QE3 is announced. the market may be having a crisis of confidence. there is ample opportunity for a return of strong buying of silver if investors have the nerve to re-enter the volatile market.e. which could lead to a pullback in bullion prices. The symposium does not wind up until next weekend so there may be room for bullion prices to run higher this week. Holdings across the gold ETFs we follow climbed 25. i. Since that would be a soft default – it debases the dollar by printing more money – gold's continued rise and the dollar's retreat close to the bottom of its recent trading range come as no surprise. while shorts covered. So although the dollar is not losing value at present. This is especially so should the powers that be manage to stabilise market confidence again. Funds Gold : Silver ratio Despite another rebound in gold prices last week. As the chart shows.com . This suggests the market is getting nervous about the extent of the gains. having dropped 324 tonnes in the previous week. will they default or will they come up with a way to grow their way out of the debt spiral? Last week’s poor economic data has sparked more talk of QE3. we would expect more dollar weakness and stronger bullion prices but it may be too early to expect the Fed to announce QE3. But judging by gold's over-performance relative to silver in recent weeks and with some signs that the funds are getting nervous of gold’s rapid ascent.8 tonnes and holdings in the silver ETFs climbed 16 tonnes. which could boost the outlook for industrial metals once more. There is a risk that the market may be disappointed if no QE3 is unveiled at this week’s Jackson Hole symposium. But we thought it unlikely that silver would be left behind if gold continued to rise. In silver. This raises the question: how will this debacle end? Will governments inflate and debase their way out of the problem. the net long fund position on gold fell 3. It seems neither central bankers nor politicians have answers to the debt problems or for career/party political reasons do not want to take them. giving silver the edge over gold. The gap higher in silver on Monday bodes well and.Market Drivers Dollar Index Gold & Silver ETFs This weekly chart shows the dollar holding in a sideways range just above the recent lows. it is not showing any signs of gaining value. Conclusion – As the Trader Talk quote above suggests. money may move back into silver rather than push gold higher still. with QE3 in the air.

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