London, 11 August 2011

Sharps Pixley, London: Gold struck yet another all time high of $1813.80 early this morning, marking an 18% gain in just over a month. The acceleration in the gains in the gold price underscores just how nervous the financial markets are of the recent run of events both and more recently with regards to stability in Spain, Italy and now France.
The knock on effects of the downgrading of US debt by the rating agencies from its coveted AAA level have less than many had feared with equity markets taking much of the brunt.  The effect is likely to be most pronounced amongst the main creditors, who, after the Fed itself are China, Japan and the UK. With significant amounts of money-printing
the value of dollars falls and the natural corollary to this is a weaker dollar and conversely higher prices for commodities (which are priced internationally in dollars). As such, countries like China will be effectively importing inflation which will be passed onto other nations through the goods that they produce/export.  Many of those commodities have recently seen some temporary price weakness on concerns about economic growth but we expect these to rebound again as markets settle.

Gold stands unique within this story and actually wins in almost all scenarios. In extremis, it is an excellent safe-haven with a powerful and effective means of protecting investor value - and in a slightly happier economic environment, it benefits from expectations of inflation as an after-effect of the fiscal medicine (in the form of QE) that have been meted out. In short - some people think gold is about making money - it's not - its about protecting what you have. Sharps Pixley have sold physical precious metals to plenty of investors who are not chasing gains as such but understand the need to park some value in this important asset class for precisely times like this. They have been rewarded for their perspicacity.

In the short term gold does look a little overbought with a relative strength indicator of over 85 and some profit-taking or even consolidation at present levels should be in order before further gains this autumn. This will confer strength into the present price. The physical gold market has been particularly buoyant of late with availability of stock quite hard to source in size in recent weeks which very much indicates to us that retail demand has been taking these markets to all time highs. Is it time to get out when the little guy comes in ? Usually - but not this time. This bull run has legs !

What would it take to see golds fortunes reversed ? Firstly an end to the constant drip-drip of negative data showing economic stagnation (and more particularly job losses), a cogent economic plan drawn up by political leaders and the full support of the populace to take their medicine no matter how unpalatable it may be. Presently we see little scope for this and remain confident that ongoing upside for gold exists - certainly for at least 6 months. We had forecast a top for gold at $1850 in 2011 and an average for the year of $1513 - we may have undershot a little - which is untypical of us. Gold has averaged $1477 so far this year and if it holds current levels then a figure closer to $1600 is on the cards.

Ends --

Ross Norman, www.SharpsPixley.com