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London Bullion Report

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Cash generation weighs on precious metals, gold ETF holdings at new record

Wed, Oct 1 2008, 10:20 GMT
by James Moore

The Bullion Desk


London, 01 October 2008 - Despite Mondays rejection speculation returned that the US government’s $700bn rescue package would win official approval, and triggered a rebound in equity sentiment and strong gains in the US dollar yesterday. EUR/USD closed at 1.4096 having dipped as low as 1.4008 after European Finance ministers were forced to bailout European institutions. But despite various Central Banks pumping billions into the money market, banks and institutions remained reluctant to lend cash, forcing LIBOR to a record 6.88% while EURIBOR jumped to 5.05%. Energy futures recovered some of the ground lost Monday with NYMEX crude settling up $4.27 at $100.64/barrel.

Gold finished Tuesday some 2.8% lower as a result of the stronger dollar and cash generating long liquidation, and dipped to $856.40 in after-market trade. Despite the weakness the metal again saw an influx of safe-haven investment demand, with holdings in the SPDR ETF rising a further 4¼% or 984k/ozs and bargain hunting overnight has lifted the metal back to the $880 area. We continue to believe the recent events within the financial markets will draw increase diversification towards gold, propelling the metal to fresh highs above $1000/oz, although the immediate need for cash will leave the metal vulnerable to bouts of long liquidation in the short-term.

Gold

Silver closed Tuesday down $1/oz and slipped to a low of $11.73 in late trade. The metal has tracked gold up to $12.40 this morning however the metals failure to clear the $13.60-85 resistance band and the close below $12.50 suggests the return of bearish sentiment short-term with support expected at $11.85/11.50/11.20 while the $12.50/12.85 levels are now likely to offer resistance.

Silver

Platinum tumbled to a 2 ½-year low below $1000/oz yesterday as concerns of slowing economic growth prompted further speculative long liquidation. The short-term outlook for platinum still looks quite poor as the metal remains within a down channel on the charts while reduced auto sales an improving mine output look set to shift the fundamentals from a large supply deficit to near equilibrium. However, with emissions restrictions only likely tighten and with fuel cells still an unknown in terms of demand for platinum those with a longer-term outlook may be viewing current levels favourably.

Platinum

Palladium closed down $20 yesterday at $194. Chart support is seen at $192 with resistance at $205.

Palladium


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