Gold and Silver Rally Despite a Stronger Dollar
by Joe Battaglia
Posted: May 2, 2008
Gold and silver are
both rallying nicely in spite of a still stronger dollar. The dollar is up 31 basis points at
73.58. Gold is up $5 and silver is up
$.20 in early trading, along with oil rising $1.30 at $113.82.
The payrolls data
came in better than expected with the overall loss of jobs at around 20,000
versus an expected 85,000. However, the
construction and manufacturing sectors continued to shed jobs in April. Factory payrolls fell 46,000 and
construction lost 61,000 jobs. That
weakness was concentrated in the production of durable goods. This data suggests further economic weakness
and undercuts the dollar and propels gold higher according to Jim Steele, Vice
President of HSBC. Some save haven
buying could be coming in on the expected continuing weakening of the U.S.
economy.
The market is
starting to experience good physical demand for gold. The fact that there is some fresh buying is one of the factors
that lead analysts to think the correction in gold may have run its
course. There is the anticipation of
increasing jewelry demand and more significant demand for physical gold in
Turkey.
The fact that Iran
has stopped selling oil for dollars is a key factor looking forward. While it may not have an immediate impact on
the dollar it is likely to have a negative impact in the next 6 to 12 months. Moreover, the fact that other countries in
the Middle East as considering joining with Kuwait to de-link their currencies
from the dollar is also a factor that is likely to be negative for the
dollar.
If gold can bounce
and hold above the $850 support level, it may be a positive sign that the
correction has run its course. While it
is too early to make that determination, next week may give us more insight
into the trading pattern. Meanwhile,
with gold and silver both heavily oversold, it would be consistent technically
to see a rally off of these levels at the least. In my view the wise strategy is "Don't wait to buy gold – Buy
gold and wait".
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Investors should be mindful that past performance does not guarantee future results. Transaction costs are generally 5%
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