Gold: Monday's 1.4% Jump Simply "Another False Start"?
From Chris Mullen at GoldSeek.com...
Gold slipped $5 to $953.40 and silver dropped over 1% to $18.496 by a little past 08:00 in New York on Monday, but they then rallied higher throughout the rest of trade and ended near their highs.
Gold closed $13.55 higher per ounce at $974.80 with a gain of 1.4%. Silver added 41 cents, equivalent to 2.2%.
There were no major economic reports in the US, but there was plenty to digest after Treasury Secretary Paulson announced details of the government's support for Fannie Mae and Freddie Mac.
The US Dollar index erased most of its early gains and Treasuries rose while the Dow, Nasdaq, and S&P rose markedly at the open on short covering after Paulson's plan was digested.
All three indices then soon fell back off to trade mostly modestly lower for the rest of the day as worries mounted about the solvency of several regional banks and doubt started to creep in about whether or not Paulson's plan will be effective or is appropriate.
Oil chopped around near unchanged and ended slightly higher and just 11 cents from new record closing high as demand destruction concerns battled supply issues of a strike in Brazil and a developing storm in the Atlantic.
Also of note on the energy front was President Bush's official announcement that he was lifting the executive ban on offshore drilling.
The Gold Price in Euros rose above €611, platinum lost $21.50 to $2017, and copper gained nearly 2 cents to about $3.77.
Gold and silver equities rose over 2% in the first hour of trade before they fell off to trade just a little over 1% higher by about noon in New York, but they then rallied to new highs in afternoon trade and ended with over 3% gains.
"Investors had the weekend to further digest the latest unfolding financial debacle and wondering where their insurance policy is," writes Peter Spina at GoldForecaster.com.
"Those who have assessed the risk the way I see it are driving this investment demand in the gold and silver markets. I do not believe there is much of a speculative premium in the Gold Market as other have suggested. I could see another pullback to the low $900s, but the door is now open for gold to stage another rally to record levels.
"Again, this gold rally may be another false start, but I now believe there will not be many more false starts going forward, not under this climate of failing banking and financial institutions.
"The news of Fannie and Freddie is just confirmation that the Federal government is willing to effectively nationalize and print money to bailout these monstrous (ticking) financial time bombs. With the news of the second largest bank failure on Friday afternoon also adding to the financial jitters, one must now question the integrity of the Federal Deposit Insurance Corp. (FDIC) with some $50 billion to work with.
"Once the FDIC reserve is extinguished, where will further billions come from when more and more banks continue to crumble? Confidence is deteriorating and that will only foster this secular Gold bull market!
"It is not too difficult to see the path we are on and headed. Investors who now understand this are flocking into the metals."
Tuesday at 13:30 GMT brings the NY Empire State Index for July, expected at -8.0, with all eyes then on Producer Price Inflation for June – expected at 1.3% annually – with Core PPI expected at 0.3%.
Retail Sales for June are expected to show 0.4% growth. At 15:00 GMT comes the Business Inventories report for May expected at 0.5%.
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