Precious metals firm as dollar dips on oil/inflation pressures

James Moore - Analyst, james.moore@thebulliondesk.com
Wednesday, Aug 20, 2008

London, 20 August 2008 - Sentiment in the precious metals turned firmer yesterday as oil gains and a jump in wholesale level inflation as PPI hit 1.2% triggered short covering. EUR/USD recovered from a low of 1.4630 to 1.4794 shortly before closing at 1.4780 and has held its gains so far this morning. While no economic data is scheduled for release from the US energy traders will be closely watching the latest weekly inventory readings after NYMEX crude rallied to $116.65/barrel. September futures settled at $114.53 with a gain of $1.66.

Gold opened under pressure yesterday as dollar strength prompted fresh liquidation across the precious complex. The yellow metal eventually dipped to $782.25 in European trade before bargain hunters emerged to take advantage of the cheaper prices, allowing gold to trade $786-798 into the US opening. Pressure on the US dollar led gold to work higher as the US session progressed with gold touching $815 and closing at $808.80. Further bargain hunting and physical demand has lifted gold to $818.50 overnight and for the moment it seems gold has formed a tentative base above $780 with phenomenal physical demand helping absorb heavy speculative liquidation.

Silver remained in a choppy mood yesterday, dropping to $12.41 in Asia as fund selling emerged. With the selling satisfied silver was able to stabilize, testing above $13 in Europe as gold edged towards $800. Gold's recovery in the US session finally enabled silver to stabilize above $13, closing at $13.12 and has traded to $13.42 overnight. With momentum indicators turning higher and the metal still oversold silver may benefit from further technical related buying in the coming sessions. The metal appears to have formed a temporary base at $12.40 and has run into initial resistance at $13.40, with chart resistance above pegged at $14.20. The metal may also get a boost after data yesterday showed holding in the iShare Silver Trust are stable at 200.7M/ozs.

Platinum closed Tuesday at $1354 having recovered from an 11-month low of $1304 during European trade. The metal has held above $1340 so far this morning and should continue to benefit from strong industrial demand with the metal set to remain in a substantial supply deficit this year.

Palladium hit a multi-year low of $266/oz yesterday but recovered by the close to post a $2 loss. Strong bargain hunting has been seen in both OTC and TOCOM trade overnight with chart support now pegged at $274/262 with resistance expected at $295.

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