Market News - 24th July 2013

The Bears have gone quiet. Gold looking strong for the first time in 3 months.

Gold has remained strong now for 4 consecutive weeks. The break-through of US$1,300 is significant especially when we add to this 3 key indicators:

1. Global monetary stimulation continues in USA, Europe, Japan and China.
2. Physical demand for Gold across Asia remains strong.
3. The outflows from ETFs has slowed.

It's been a few weeks since our last Market News Update and while these specific indicators provide strong buying signals for Gold, let's take a look at the cycle that we have been through over the last 2 to 3 years.

As we can see Gold and Silver have been on a steaday increase since the end of June. This was after a big drop following statements from the USA Federal Reserve's Bernanke of a proposed tapering of the current Quantative Easing or bond 'money printing' of US$85B a month. The Bears smiled and smashed the Gold price. Since then Bernanke and others have restated the message that the 'Central Bank will remain accommodative for a considerable period of time'.... Our view is even if there is some reduction in the quantum of bond purchasing this has now been factored into the Gold price.

The above chart shows a few things that are worth considering:

• The Gold price has been steadily declining since September 2011. What we have seen in the last 4 weeks is a correction of more than 12% indicating a bottom may have been reached.
• Silver has been hit most significantly. If we compare to the price at September 2012, Silver has depreciated by more than 40% while comparatively Gold was 25%. There is a case that Silver has some positive upside in the months ahead on the back of further upside and its relative position to Gold.

The Global Macro perspective:

Asia continues to be of interest as we look at the scope for an improving Gold price. Physical demand continues to be string out of China and India. There is little indication that this will abate.

The recent Japanese election results gave a strong mandate to incoming Shinzo Abe's expansionary policies. The implication here is that we will likely see excessive monetary stimulus strategies and a weaker Yen, both of which are theoretically bullish for Gold.

For what it's worth, the latest Reuters poll sees spot Gold prices averaging at US$1,411 this year and Silver at US$23.82.

On the Aussie front:

Earlier this month the RBA kept interest rates on hold at 2.75% leading to a slight strengthening of the AUD$, currently trading at around 0.9290 to the USD$.

However since then all we have heard is reasonably disappointing news in retail sales, business confidence and unemployment. The lower AUD$ does not seem to have stimulated any growth as the RBA had hoped and hence they may be forced to reduce interest rates at the forthcoming meetings. Some Economists are talking 2%.

Lower rates or even implied will likely lead to further losses in the currency.

Our view is that given that there appears to be some upside now in the Gold price and continued uncertainty in the currency, now may be a good time to invest in Gold.

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