Gold hits four-week high

“Merrill Lynch is due to announce its financial results today,” note Manqoba Madinane and Walter de Wet for Standard Bank in Johannesburg, “and the outcome will be important for investor sentiment in equity markets, as it will give further indication of the severity of the credit crunch. A negative result could depress equity markets. Due to possible asset rotation between equity markets and commodities, this could lay the foundation for more fund flows into metals. Therefore, we see strong upside potential for precious metals.”

Tokyo gold futures rose 2.2% on Thursday. Base metals all rose at the London Metal Exchange, with copper and nickel futures gaining more than 3% this morning as crude oil broke new all-time records above $115 per barrel. Euro climbed to a fresh record on the currency markets above $1.5980 following a report from the European Central Bank that cited “prevailing upside risks to price stability [i.e. inflation] over the medium term in a context of continuing very vigorous money and credit growth.” This fresh surge in the single currency capped the Gold Price in Euros at a three-week high just below €594 per ounce – almost 9% beneath the record high of March 17th and 6% above the subsequent low of €561.

For US gold investors “the $940 level should now act as good support,” says today’s Gold Market note from Mitsui in London, “with both the 30- and 50-day moving averages coming in at this level.” The precious metals dealer sets a short-term target for gold and silver at the recent highs of late March ($954 and $18.62 respectively). But “given the recent volatility it would be a surprise to see a smooth run higher.”

Volatility in world Gold Prices continues to deter Indian gold buyers, according to Reuters today. The world’s hungriest market for gold jewelry saw a fall in demand on Thursday after the local price moved back above 12,000 Rupees per 10 grams – a key level, says one bullion wholesaler in Hyderabad. The spring wedding season is forcing Indian consumers to Buy Gold on the dips, however.

The Akshaya Thrithiya festival of May 7th – the third most auspicious day in the Hindu calendar – is also forcing jewelers to re-stock their inventory. Meantime in the Arab emirate of Dubai – which has the highest concentration of jewelry shops in the world – “the Gold Market will get quieter again if prices remain volatile,” says a local trader to the Economic Times of India, “especially if gold crosses the $1,000 mark.” “Because prices dropped sharply in a short time [late last month], many buyers who took a wait-and-see-attitude thought it was good to up their purchases while prices were lower.”

Comparing the recent 16% plunge in world Gold Prices with the 50% slump seen after the 28-year peak of Jan. 1980, “the latest correction appears to more closely echo the spring of 2006,” says John Hill, the long-term gold bull at Citigroup. “It was six months before fabrication demand [including jewelry] returned and 16 months until gold managed to regain the prior peak.” But longer-term, Gold has risen four-fold this decade thanks to “wealth creation in the Indian middle class, liberalization in China, and petrodollar flows from Russia and the Middle East,” Hill added in a new report this week. “Given intensifying political and economic tensions with the US, there is no reason to believe these buyers will aver ‘No more’.” (Bullion Vault)