OJSC «Seligdar»

Market essentials /March 2009/

Few events directly affected gold prices during the last month – after reaching peak levels around $1000 per ounce the quotations of this precious metal kept decreasing, simultaneously with strengthening of the US dollar against other major currencies. There were several attempts to break the support level around $900/ounce, but the price never got significantly below that level. Prices for other precious metals exactly followed the same scenario, without any significant deviations from the trend. However, some events of the second decade of March can, in our opinion, affect the price trends in the future.
First of all, the main event on the market is the change of the FRC monetary regulation policy. Having exhausted, at the end of last year, all the reserves of decreasing refinancing rates, FRS transitioned to the method of direct purchase of federal bonds, predominantly long-term series, in order to decrease the cost of borrowings and weaken US dollar against other currencies. At the first stage it is planned to spend up to $300 billion, which is included into the reviewed FRS budget. Secondly, it is planned to pump into the monetary system about $750 billion dollars more in order to purchase from the market mortgage and associated papers. According to the FRS logics, it will initiate the growth of demand for mortgage programs and decrease the share of "toxic” credits in the bank portfolios, thus leading to growth of crediting to the ultimate borrowers and production sector. All this new actions will undoubtedly have two effects of different magnitude and timeframe upon the precious metal market.
On one hand, negative prospects for US dollar are created for the next 3-6 months: growing monetary liquidity and decreasing rates, as well as increasing FRS budget shall accelerate the inflation, negatively affect the price of US dollar and increase the price of gold. On the other hand, weakening dollar and growing inflation will cause more intensive demand for gold and other precious metals as main hedge against American currency, which is also positive for the gold prices.
Taking all this into account, we expect new "attacks” of the price levels $1000 -1100/ounce. Silver can test the level of $14.8/ounce. Platinum will be more stable, but also can have a trend to increase prices.

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