Week ending 15th March 2013

Gold to test US$1,600 while Central Banks continue to buy at these levels.

Gold has shown strong support several times at US$1,554 and continues to bounce around US$1,590. The short term indicators are forming that we will see a test of US$1,600 and above while the long term indicators continue to be strong.

We have talked recently about the Money Managers being 'short' meaning they are betting on the price to fall. These speculators will soon get tired and will have to close out their positions (means buy Gold) or risk losses.

By Thursday last week the Dow had seen its 10th consecutive daily rise, a trend that we have not seen for more than 15 years. While equities continue to rise, Investors will naturally tend to transfer investment from Gold into equities or at the very least hold off on Gold buying decisions. Several commentators are predicting a bounce back for equities which would be positive for Gold in the short term.

In the meantime, Central Banks have continued to buy Gold. A report from the World Gold Council last Friday focused on the Central Banks' currency diversification strategy where a common view is that Gold trumps other currencies as the reserve asset of choice as they seek to diversify from US dollars and the Euro. Whilst there has been recent buying in alternative currencies such as the Aussie $, Chinese Yuan and Canadian $, their relative small size and limited access makes them inferior to Gold as a diversification strategy.

This coming week will see the US Federal Reserve's Federal Open Market Committee (FOMC) meeting where we may hear from the Fed on their monetary easing strategy for 2013 and 2014.

A Global Update:

While the recent strength of equities has been the focus and presenting downward pressure on Gold, there have been a number of comments or news items that reminds us of the state of the global economy, such as:

1. The German Central Bank said Bundesbank was setting aside reserves against what it deemed to be a risky plan of the European Central Bank stressing that the 'crisis' is not over despite a recent calming in financial markets. There is significant uncertainty as to the future for France, Italy and Cyprus, to name a few.
2. The number of people with work in Europe is the lowest it has been for over 7 years with 11% of the working population unemployed and 1 in 2 young people in Greece, Spain and areas within Italy and Portugal do not have a job.
3. The Korean situation is tense.
4. The CPI figures released last week in the US was up more than expected reminding us all that higher inflation is lurking.

The longer term outlook for Gold remains strong.

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