OJSC «Seligdar»

Market essentials /June 2009/

June proved to be less favorable for gold market than we expected. The main troublemakers on the market were the growing stock indexes that provoked close-out of long term positions in precious metals by hedge funds and flow of funds into more dynamic and volatile security market. Over the month, the markets of precious metals lost 5-7% of the prices of the end of May.The fact that this trend was indeed associated with the stock indexes is confirmed by synchronized decrease of prices for precious metals, which is indicative of massive close-out of similar positions and removal of funds from the market of precious metals. 
However, no global changes occurred on the market of precious metals. Anticipations of further weakening of US dollar in the near term future (high debt burden, impossibility of its restructuring and extensive emission of money – all these factors negatively affect American currency) remained a predominant idea, leading to increasing demand for hedging instruments, primary of them being precious metals. Besides that, following circumstances need to be taken into consideration. On the stock markets in America and other regions, downward correction is being observed since the third decade of June and some experts forecast it to be medium-term correction. Besides that, US Department of the Treasury intends to issue about $105 billion worth of new Federal bonds, which will cause local outflow of funds from other markets into this conservative instrument, but on the other hand will continue downwards pressure on the US dollar. In addition to that, information already appeared that in the conditions of low inflation rate in order to maintain the currency exchange rate US Federal Reserve System can resume increasing the discount rate. So far the outcome of integrated influence of these oppositely directed actions is hard to predict, especially while some of them are yet to be taken, but there are signs of beginning of a new period of instability on the markets. It means that hedging demand for precious metal can resume, causing stabilization of the prices at the present level. We do not see significant reasons for correction of the gold market below $900/ounce, nor any strong driving force for the gold to go over $1000/ounce benchmark. 

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