Yesterday’s AM fix was USD 1,705.25, EUR 1,299.93 and GBP 1,088.57 per ounce.

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Gold fell $12.40 or 0.72% in New York yesterday and closed at $1,700.80/oz. Gold rose in Asia initially touching $1707/oz prior to falling in Europe to below $1,700/oz.

Trading was slow as investors await the outcome of a Federal Reserve meeting, which could offer clues over the direction of interest rates in the world’s largest economy.

Bernanke may again try and “influence the mood” by suggesting that QE is not imminent which could lead to further short term weakness in the gold price.

However, analysts who have been accurate regarding Fed policy in recent years believe that Bernanke is in affect bluffing and the fragile US economic recovery is now massively dependent on near zero percent interest rates and QE.

Contrary to the oft repeated assertion that rising rates will be negative for gold – the opposite is of course the case as was seen in the 1970’s when rising rates were correlated with rising gold prices.

Rising interest rates are bearish for stocks, bonds and property and bullish for gold. A prolonged period of rising interest rates and the assertion of positive real interest rates again would be bearish for gold but the Fed would risk a Depression if it attempted to move interest rates up to even the historically low levels like 3% or 4%.

Buy Gold Because A Currency Crisis is Coming

We have long warned that a consequence of a sovereign debt crisis in various countries and coming in the US , would be currency devaluations and an international monetary crisis. Slowly but surely various commentators are now coming to that conclusion.

According to a new book launched this month, ‘In Gold We Trust?’ a currency crisis is coming and people should buy gold to protect themselves.

Michael Green, co-author with Matthew Bishop of ‘In Gold We Trust?’, explains to Gregg Greenberg of The Street in the video why a currency crisis is unavoidable and investors need to protect themselves with gold.

Bishop is the US Business Editor and New York Bureau Chief of The Economist and Green is an economist and an author who has written books with Bishop.

“There is a crisis going on in money that is going to run and run and run. So there is a pretty good case for being long on gold” says Green.

“We have got used to the idea that paper money issued by governments is what money is but if you don’t have confidence in that money people are going to be looking for alternatives.”

“So I think the point we want to make in the book about gold is don’t think about gold is going back to some historic past, some true money. Think of gold as being the first mover in the new evolution of money where we are going to have to find lots of different monies if government backed money collapses.”

Green says that he believes that “the crisis is only really starting”.

“There is a whole debate that goes on between economists as to whether inflation is coming true or not … Alan Greenspan says that it is about 12 or 13 quarters before the expansion in QE will lead to inflation.

“I don’t think that argument matters so much the real argument is political. Whoever has to deal with the deficit problems, the economic problems, this whole deleveraging crisis – I think at some point it is going to have to reach for the inflation button. It’s going to be the only way we get out of this. Because cutting down, austerity, European style austerity is not going to work with the voters so the political drivers for inflation are much stronger than this monetary story.”

“When asked by Greenberg what Green thinks the triggers will be for governments to start paying attention to the crisis – whether it will be a jump in interest rates or a total abandonment of US Treasuries by the Chinese and “what is going to cause them to finally get their heads out of the sand and focusing on the currency crisis and then to gold?”

Green refers to gold investor Thomas Kaplan’s view of paper currencies as Kaplan said that “all paper currencies are toilet paper but the dollar is double ply” toilet paper.

Green concludes by warning that a dollar and currency crisis is coming.

“In a sense the dollar is insulated. So you have got this paradox that even though nothing is being done about the deficit in the US, because of the euro troubles the dollar is actually rising and gold has been falling as a result.”

“So the day when this crisis comes keeps being put off because of the unique nature of the dollar as global reserve currency but it is coming at some point and what we are going to see is investors looking for alternatives and gold is the first alternative  …  it won’t be the last.”

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SILVER 
Silver is trading at $33.59/oz, €25.63/oz and £21.45/oz.

PLATINUM GROUP METALS 
Platinum is trading at $1,690.25/oz, palladium at $692./oz and rhodium at $1,450/oz.

Provided By Goldcore

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The surprisingly bigger than expected trade deficit for China hit gold prices yesterday, snapping a stream of three positive sessions as demand for precious metals also came under questioning. The Asian country is one of the top buyers of gold jewellery along India so a slowdown in its economic growth is bound to have a negative effect on gold prices. Overall, the yellow metal fell $13.70 to $1700.00 but its short term outlook remains momentarily one of consolidation.

Moving Averages:   9 day 1701.20        14 day 1722.18       40 day 1718.96

Silver Overview

Silver followed gold lower, losing 64 cents to $33.620, trading largely within support and resistance provided by the 14 and 40 days moving averages. As we mentioned in yesterday’s report, swinging around $34.000 mark seems to be again in fashion as silver investors wait for further developments in the global markets.

Moving Averages:   9 day 33.986    14 day 34.528      40 day 33.534

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A much wider than initially anticipated trade deficit for China, the world’s second oil consumer has spilled over into energy complex sending crude prices down. The Chinese government said the deficit of $31.48 billion for last month was a result of lower exports demand combined with seasonal downward adjustments and followed an over $27.00 billion surplus for January. In addition, sovereign debt troubles in Europe are far from being solved despite reassurances from Brussels that Greece will gets its bailout funds.

Moving Averages:   9 day 106.80      14 day 107.20      40 day 102.58

Technical Report

Crude prices started the week on the back foot, dropping 92 cents to $106.58 a barrel after touching an intraday low of $105.38. By and large the bears controlled the morning session but bargain hunters helped crude prices pared some of the initial losses towards the close. A neutral stance around current level is the favourite play. $105.38 is the first downside target followed by $104.35 while on the up bulls will be keen to breach resistance within $107.50 – $108.00 range.

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The leader of the euro finance ministers, Jean Claude Juncker reassured the markets yesterday by saying ‘there is no doubt’ that Greece will get the approval for its bailout funds later in the week. Consequently, the single currency enjoyed a slight rebound after Friday’s sharp sell off, gaining 26 pips to $1.3147. After rallying to nearly $1.35 from the beginning of the year, the euro is now ranging within $1.3100 – $1.3300 as the short term bias seems to turn sideways.

Moving Averages:   9 day 1.3188     14 day 1.3263    40 day 1.3157

GBP/USD Overview

The British pound dropped to an intraday low of $1.5598 yesterday and closed 31 ticks down at $1.5634 on the back of opposite outlooks on the two sides of the Atlantic. If in the US, the nonfarm payrolls showed an employment sector on the mend, in the UK the recovery is faltering if one looks at the falling retail sales for February, second in a row. And that was the reason why the Bank of England kept its pledge to buy some 50 billion pounds worth of bonds by May, at the same time holding its benchmark interest rate at 0.5%.

Moving Averages:   9 day 1.5766     14 day 1.5796      40 day 1.5729

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Friday’s AM fix was USD 1,714.50, EUR 1,292.99, and GBP 1,076.14 per ounce.

Cross Currency Table – (Bloomberg) 

Gold fell $3.10 in New York Friday and closed at $1,711.60/oz. Gold fell in Asia prior to modest price falls in Europe which has gold now trading at $1,696.43/oz.

Gold fell by nearly 3.5% last week – the largest one week fall since the week of Dec 18. Gold’s intraday and monthly low from the “Leap Year Gold Massacre” is $1,688/oz. Technical damage continues and a breach of this level could see gold quickly fall to support at $1,650/oz.

Gold 1 Year Chart – (Bloomberg)

Gold is being supported by Asian physical demand, which has picked up again and was robust in Asia overnight. Asian jewellery makers are reported to have been using this dip to stock up on gold.

Besides Asian jewellers, many Asian money managers and hedge funds continue to see the value in the yellow metal and buy on price weakness.

Gold is also supported by good retail and institutional demand internationally as seen in the new record ETF gold holdings last week. CFTC data shows that hedge funds, bullion banks and other institutions also remain positive on gold and increased their net long positions last week – rising by 12,259 contracts or 7% from a week earlier.

The EU’s second 3 year funding and a surprise policy easing by the Bank of Japan a few weeks ago has pressured the euro and the yen making gold increasingly attractive to holders of these currencies. Economists believe that the ECB will keep interest rates low at 1% until deep into 2013 on economic concerns and despite high oil prices and the impact of the money that they’ve flooded into the market.

Continuing negative real interest rates and global currency debasement are strong fundamentals leading most analysts to forecast much higher prices.

Citigroup have said that they believe that gold will rise to $2,400/oz in 2012 and by $3,400/oz in “the coming years”.

However, Citi’s Tom Fitzpatrick warned of price weakness in the short term and said there is a “real danger” that there may be a correction to $1,600/oz which would provide an even better buying opportunity.

Citi are also cautious near term on oil and silver.

Production of gold in Australia slid again last year, despite gold fetching higher nominal prices than ever before.

According to gold experts, Surbiton Associates, 264 tonnes of gold were produced last year, two tonnes less than in 2010.

The 264 tonnes equated to about 8.5 million ounces and ensures that Australia remains a major player in gold, with only China producing more last year. The United States was the world’s third-biggest producer with 240 tonnes.

Australia’s gold production was well below the nation’s production peak in the late 1990s.

This further suggests the possibility of peak gold production. Of the world’s four biggest gold producers (China, Australia, the U.S. and South Africa), only China has managed to increase gold production in recent years and this Chinese gold is used in China to meet the rapidly growing demand for gold jewellery and coins and bars as stores of value in China.

Thus Chinese gold is not exported into the international market which means that the supply/demand balance in gold is remains tight and the last Wednesday’s manipulated sell off provides yet another buying opportunity.

OTHER NEWS
(Reuters Global Gold Forum) — Morgan Stanley this morning say stay long gold, even after Bernanke’s comments last week were interpreted as signalling less chance of QE3. However, we believe that the move last week was profit taking predicated by the news rather than a change in fundamentals.

The drivers of the long-term uptrend in gold remain intact, most notably negative real rates,” MS say.

According to their “Commodity Thermometer”, MS are most bullish on gold and most bearish on zinc, although of the 20 commodities listed, platinum is in 17th place.

Morgan Stanley say: “We are less bullish on the Platinum Group Metals. Platinum lacks safe haven status and has limited investment demand. With jewelry and the automotive industry as key end markets, slowing global GDP and lower discretionary spending put demand at risk.”

(Bloomberg) — RBS Says Central Banks Will Buy 300 Tons of Gold This Year
Central banks will buy 300 metric tons of gold this year, Royal Bank of Scotland Plc said.

China, Russia and India have been the biggest buyers and Switzerland, France and the Netherlands the biggest sellers since the first European central bank gold agreement to limit sales, according to the RBS report e-mailed today.

(Bloomberg) — Morgan Stanley Says ‘Stay Long Gold’ on Negative Real Rates
Gold will climb mostly because real interest rates are still negative, Morgan Stanley said. There is still a 75 percent chance of another round of quantitative easing in the U.S., Hussein Allidina, an analyst at Morgan Stanley, said in an e-mailed report today.

(Bloomberg) — China’s January Gold Imports From Hong Kong 33,039 Kilograms
Hong Kong government announced January gold exports which showed China’s January gold imports from Hong Kong were 33,039 kilograms

(Bloomberg) — Gold Traders Increase Bets on Price Rise, CFTC Data Shows
Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week ended Feb. 28, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 193,220 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 12,259 contracts, or 7 percent, from a week earlier.

Gold futures fell this week, dropping 3.7 percent to $1,709.80 a troy ounce at today’s close. Miners, producers, jewelers and other commercial users were net-short 245,351 contracts, an increase of 16,049 contracts, or 7 percent, from the previous week.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices.

(Bloomberg) — Silver Traders Increase Bets on Price Rise, CFTC Data Shows
Hedge-fund managers and other large speculators increased their net-long position in New York silver futures in the week ended Feb. 28, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 30,003 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 3,338 contracts, or 13 percent, from a week earlier.

Silver futures fell this week, dropping 2.5 percent to $34.53 a troy ounce at today’s close. Miners, producers, jewelers and other commercial users were net-short 44,593 contracts, an increase of 5,405 contracts, or 14 percent, from the previous week.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices.

SILVER 
Silver is trading at $34.22/oz, €25.95/oz and £21.62/oz.

PLATINUM GROUP METALS 
Platinum is trading at $1,663.50/oz, palladium at $698.00/oz and rhodium at $1,475/oz.

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With no mentioning of a possible third round of asset purchasing in Federal Reserve Chairman Ben Bernanke’s speech last week, gold sold off sharply as demand for an alternative asset eased. Instead, encouraged by a US economy on the mend investors rushed into the greenback again delivering further blows to the yellow metal. On Friday, gold lost $5.85 to $1712.25 ending the week on its knees after the significant nosedive seen Wednesday. The short term outlook has now turned to the downside.

Moving Averages:   9 day 1746.52        14 day 1742.10       40 day 1710.21

Silver Overview

A strengthening US dollar also pressured silver prices last Friday to $34.768, 69 cents down for the day. Failing to sustain a breach above the $37.000 mark has spurred a steep sell off in silver but at the same time the buyers will take some joy from what looks as solid support just below $34.400 level. On the upside resistance at $35.460 will need to be tackle before talking about a resumption in this year’s rally.

Moving Averages:   9 day 35.186    14 day 34.613      40 day 32.946

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The Saudi officials denied reports of an oil pipeline explosion thus easing concerns of supply disruptions and sending crude prices tumbling last Friday. Renewed fears regarding sovereign debt crisis in Europe also hurt demand in the energy sector already weakened by the current high prices. A stronger US dollar combined with lower equities provided their traditional bearish influence to the energy complex and likewise the profit taking ahead of weekend.

Moving Averages:   9 day 107.52      14 day 105.82      40 day 101.73

Technical Report

After touching a fresh recent high of $110.55 in the previous session, crude prices lost $2.25 on Friday closing at $106.50 a barrel. It dropped below the 9 day moving averages indicating that a near term top may have been formed. The intraday bias has now turned neutral. The bears will undoubtedly target support at $104.84 while the bulls need to challenge $110.55 successfully to prove the upside trend remained intact.

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Despite last week’s liquidity operation by the European Central Bank and the signing of a new fiscal pact, there seems to be further cracks in some of the members’ budget targets. Countries like Spain and Netherlands already announced the possibility of more austerity measures to keep deficits under control. In addition, Germany, Europe’s biggest economy saw its retail sales declining 1.6%, adding extra pressure on the single currency. Meanwhile, echoes of Ben Bernanke’s testimony to Congress were still sending investors into the greenback. So, little surprise to see the EUR/USD pair continuing its plunge, losing 112 pips to $1.3196.

Moving Averages:   9 day 1.3326     14 day 1.3267    40 day 1.3093

USD/JPY Overview

Japan’s lost decade(s) looks never ending as last Friday, a government report indicated a fall of 0.1% in the consumer price index (the fourth decline) for January. Investors were quick to point out the ongoing deflationary pressure and speculated that Bank of Japan may need to ease its monetary policy yet again to kick start the economic growth. By contrast, the US economy showed signs of improvement lately, attracting demand for its currency especially when QE3 looks off the table for now. Overall, the Japanese yen lost 67 ticks to 81.785, the weakest level since late May last year.

Moving Averages:   9 day 80.91     14 day 80.32      40 day 78.17

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Yesterday’s AM fix was USD 1,721.00, EUR 1,303.10, and GBP 1,091.80 per ounce.

Currency Ranked Returns – (Bloomberg) 

Gold ticked higher in Asia to $1,730/oz but has again shown weakness in early morning trade in Europe and is trading at $ 1,725.90.

Gold is being supported by the never ending Greek debt saga and increased tensions between Israel and Iran which has seen US crude rise above $101 per barrel.

Gold continues to consolidate between $1,700/oz and $1,763/oz. After the strong gains seen in January, more consolidation at these levels may be necessary prior to gold challenging $1,800/oz.

Significant macroeconomic and geopolitical risk and the appalling fiscal state of most major industrial nations means that all fiat currencies will almost certainly fall against gold in the coming months.

These risks have led to total gold ETF holdings rising to near record levels and the SEC filings make for interesting reading.

Cross Currency Table – (Bloomberg) 

While much of the focus has been on Paulson & Co., the hedge fund founded by billionaire John Paulson, cutting its stake in the SPDR Gold Trust by 15% in the fourth quarter, possibly of more importance is the fact that PIMCO, the Texas Teacher Retirement System and George Soros all increased their holdings of the biggest exchange-traded product backed by gold.

Paulson cut his gold ETF bullion holdings by about 600 million dollars in Q4, a reduction that was likely driven by client redemption needs as he and his fund remain upbeat on gold – primarily due to inflation concerns.

Paulson’s reduction in SPDR was offset by other important buyers such as PIMCO, which oversees $1.36 trillion and is home to the world’s biggest bond fund and significant institutional buying from the likes of the Texas Teacher Retirement System and billionaire investor George Soros.

‘Bond King’, Bill Gross recently wrote about gold as a “store of value” and PIMCO’s allocation to GLD may be ongoing as they seek to diversify their portfolios and hedge against inflation.

Soros, who once suggested gold was or would be “the ultimate asset bubble,” raised his stake in the SPDR Gold Trust (GLD), a gold-backed exchanged-traded fund, to 85,450 shares, up from 48,350 shares in the period. Soros, who had disclosed call and put options on the gold fund in the prior period, reported no such investments in the fourth quarter.

Soros’ GLD position is worth a mere $13 million, however it suggests that he is not as bearish on gold as portrayed and that he sees further upside for gold.

Eton Park Capital, run by Eric Mindich, retained its stake.

Vinik Asset Management, the Boston-based hedge fund founded by Jeffrey Vinik, who formerly ran the Fidelity Magellan Fund, held 2.6 million shares in the SPDR gold ETF as of Dec. 31, down 775,000 shares from the end of the third quarter.

Tudor Investment, the $11 billion hedge fund based in Greenwich, Connecticut, sold in entire stake of 200,000 shares of the SPDR gold ETF. Patrick Clifford, a spokesman, declined to comment.

Steven A. Cohen’s SAC Capital and New York-based Touradji Capital Management LP cut SPDR gold positions.

SAC Capital, which manages $14 billion and is based in Stamford, Connecticut, held 179,601 shares, compared with 184,601 in the third quarter. Jonathan Gasthalter, a spokesman for SAC Capital, declined to comment.

Touradji Capital, founded by Paul Touradji, sold its entire stake of 45,000 shares in the SPDR gold ETF. The hedge fund bought the securities in the third quarter. Leslie, also a spokesman for Touradji, declined to comment.

Lone Pine Capital LLC, the hedge fund run by Stephen Mandel Jr., acquired 3.75 million shares of the SPDR gold ETF.

Stevens Capital Management Holdings Ltd. sold its entire stake of 77,019 shares in the SPDR gold ETF. GLG Partners LP sold its full stake of 94,675 shares.

Overall holdings in the SPDR Trust rose nearly 2% in the fourth quarter, following a 2% gain in the third quarter.

Gold ETF holdings increased even though the price of bullion fell around 4% in the fourth quarter – showing how ETF gold demand is just one facet of global investment demand and demand for physical bullion from investors in Asia and internationally and from central banks remains more important than ETF demand.

Global holdings in exchange-traded products backed by gold were 2,390.7 metric tons, approaching a record high, according to Bloomberg data. They rose 4.8 percent in the fourth quarter and 7.8 percent in 2011. Central banks around the world added 157 tons to their holdings in the six months ended Nov. 30, World Gold Council data show.

The SEC GLD data shows that diversification into gold continues by some of the largest hedge funds and institutions in the world.

It is worth noting that some hedge funds and institutions are on record as having sold their GLD holdings in order to own gold bars in allocated accounts.

This was done in order to avoid the transparency and scrutiny that comes from owning the GLD (quarterly SEC filings). Others such as Kyle Bass and David Einhorn have bought gold bars in allocated accounts due to concerns about the significant counter party risk in the world today.

UBS point out that looking solely at SEC GLD data as a guide to sentiment towards gold may be deceptive as “it could very well be the case that exposure to gold is merely transferred to other less-visible channels”.

Bullion dealers internationally have seen a significantly increased preference for gold bullion (coins and small and large bars) in allocated accounts in recent months – especially in the aftermath of the MF Global fraud and theft of clients assets.

Given the degree of counter party, re hypothecation and systemic risk in the world the preference for outright legal ownership of real physical metal is set to continue in the coming months.

This will rightly lead to an increased preference for legal ownership of bullion coins and bars over exchange traded vehicles and trusts with high levels of indemnification and significant counter party risk.

OTHER  NEWS
(Bloomberg) — Shanghai Futures Exchange Lowers Gold Margins to Boost Trading
The Shanghai Futures Exchange, China’s biggest metals bourse, lowered the margins on gold for trading the contract in the final month before its expiry to boost volumes and attract more investors.

The margin requirement, or the minimum amount of cash that investors must keep on deposit, will fall to 10 percent from 15 percent from the first trading day of the month before delivery, the Shanghai exchange said in a statement on its website. The margin is also lowered to 20 percent from 40 percent for the last two days before the final trading day of the contract.

Margins for contracts are initially set at 7 percent from the day they are listed on the bourse, according to the statement. The changes will be effective from March 1.

“The exchange’s move is aimed at boosting trading at a time when volatility seems to have been tamed,” Zuo Xichao, manager at Beijing Antaike Information Development Co., said by phone from Changsha today. “Lower margin requirements will make these investments easier and more attractive because trading now requires less money to be locked up.”

Gold futures on the Shanghai exchange gained 3.4 percent in 2011, climbing for the third year, as the escalating debt crisis in Europe, slowing economic growth in the U.S. and rising inflation in China boosted demand. Still the yuan-denominated gold futures gained less than the 10 percent increase last year in the spot-delivery gold traded overseas.

The June-delivery contract in Shanghai gained 0.5 percent to 352.18 yuan a gram today.

SILVER 
Silver is trading at $33.76/oz, €25.67/oz and £21.49/oz.

PLATINUM GROUP METALS 
Platinum is trading at $1,636.00/oz, palladium at $681/oz and rhodium at $1,500/oz.

Provided By Goldcore

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Crude prices edged higher yesterday as a better than anticipated economic sentiment in Germany, Europe’s biggest economy discarded energy investors’ pessimism after Moody’s Investors Services slashed the credit rating for a number of euro zone members. Some extra support for oil prices was also provided by the escalation of geopolitical tensions with Israel accusing Iran of attacks on its diplomats abroad. Like usual on Wednesday, the release of weekly oil inventories is expected to offer near term direction for the energy complex.

Moving Averages:   9 day 99.71      14 day 99.29      40 day 99.92

Technical Report

Challenging resistance around $102.00 level was too tempting for the bulls and they pushed for it in the first part of the trading session. However, more often than not in the last three months, crude failed to sustain the rally above that mark and additional selling power pushed the market price back down. It was the case again yesterday but the retracement was not enough to cancel off the initial gains entirely and crude ended the day 28 cents up at $101.31 a barrel.

DOE Stock estimates

Crude +1.3

Distillates -1.0

Gasoline +0.4

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