Gold And Silver: Precious Metals Start Gaining Value

Political risks have recently increased amid Iran’s threats to block Hormuz Strait and North Korea’s new leadership.

The Iran issue has already helped the USA to sign an agreement with Saudi Arabia, according to which the former is obliged to deliver 84 new jet fighters F-15 (the total cost is $29.4B). This is a good economic stimulus for the USA. In the meantime, according to yesterday’s report, the US jobless claims increased more than expected.  

Right after the end of the mourning, the new leader of North Korea started his rule with treats to South Korea, thus confirming no change in the country’s external policies.

Italy held another bond auction to the sum of 7B euro, which was lower than expected (8.5B). The total amount of the weekly bond sales is 20B euro. The yield is 5.62-6.98%.

Today the Spanish government is expected to announce a new package of austerity measures aimed at reducing the country’s budget spending. The cuts are estimated at 4B euro. The aim is to reduce the budget deficit down to 4.4% of the GDP. This year the deficit is expected to stay around 6.5%, which is much lower than 11.2% in 2009.

Yesterday gold and silver rallied and found support around 6-month and 12-month lows correspondingly. Gold continues its biggest rally since 1920. However, big-scale investors anticipate a downtrend. In particular, not so long ago George Soros sold 99% of his gold assets. In order to formally enter a bearish cycle, gold needs to break below 1536.92, which is usually determined by a more-than-20% decline from the local high. Analysts are sure that if gold declines in value, central banks around the world will keep expanding their gold reserves. According to Goldman Sachs, central banks will probably purchase 600 tons of gold – the biggest amount since 1970.

Forecast: According to the Department of Commodity Trading of , today gold may consolidate within yesterday’s price range. After hitting 1524 yesterday, investor showed some demand for gold. Today gold may test 1560 and try to break above yesterday’s high. If the test is successful, the rally will probably hit 1590 and even 1597-1600. However, 1560 is more likely to stay unshakable, thus making the price rebound to the closest area of support  - 1547, 1541 and 1535.

Silver is in downtrend. The closest levels to test are 27.315, 27.25. They will probably be broken. If so, the downswing will hit 26.8-26.85 and maybe even 26.15 and 25.75. The closest level of resistance is 27.62. A break and consolidation above it will increase the probability of a rally up to 28.0 and 28.7.