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Market essentials /October 2009/

Just as we anticipated in the previous overview, the prices for gold and other precious metals grew considerably in October, the most of the growth having occurred in the first decade of the month. There was one but important reason for it – drastic weakening of US dollar on the international markets, which caused growth of prices not only for gold, but for many other commodities, primarily oil and other fossil fuels. Investors resumed decreasing “fear of risk” and started increasing their shares in the raw material assets and alternative currencies. Another important factor contributing to weakening of the US dollar is the use of the American currency in carry-trade operations as a cheap funding currency. This creates additional stimuli for the decrease of US dollar exchange rate, which is used by the investors pumping up the prices at stock exchange and raw material markets.

However, we might not see a faster growth of the cost of gold and other precious metals yet. As the dollar is approaching the psychologically important level of 1.5 dollars per Euro, its further decrease meets with strong resistance the currency speculators are as yet unable to break. The point is that strengthening of the Euro against US dollar beyond this point is jeopardizing recovery of the European economy and facilitates replacement of the European goods on the EC market for cheaper goods from China, whose currency is tied to US dollar, wherefore weakening of the dollar gives China all the benefits and competitive advantages on the external markets. This circumstance already resulted in highlight declarations by the President of the European Central Bank J-C. Trishe, head of the Bank of England and some prominent economists about the need for US to return to strong monetary policy and inability of Euro to become a reserve currency. These verbal interventions slowed down strengthening of Euro, and in the second decade of October the precious metal markets also stopped growing at the levels slightly below the resistance levels.

We anticipate the neutral trend to be maintained at these markets on a month timescale, and the prices for precious metals to be volatile around the achieved levels. The likely range for gold prices appears to be $1060-1080/ounce, silver can be traded at $17-18/ounce, platinum is stable at $1350-1400/ounce. It cannot be excluded that in case of reversal of the existing trend at the currency market anticipated by some analysts, precious metal prices can slightly decrease, but the period of weakening will hardly last long and, as it happened earlier during dollar growth periods, some of the investors will keep preferring commodity stocks, thus precluding the prices from dropping notably. The markets of precious metals remain less risky compared to the currency markets.

Gold prices at LME (Aug 2009-Oct. 2009)

Silver prices at LME (Aug 2009-Oct. 2009)

Platinum prices at LME (Aug 2009-Oct. 2009)

RF Central Bank book prices for refined precious metals for the period of 01-23/09/ 09 (rub./g)

Date	Au	Ag	Pt	Pl
01.10.2009	966.01	15.5	1 237.8	280.76
08.10.2009	1 002.5	16.23	1 279.2	298.74
15.10.2009	1 009.8	17.04	1 286.4	311.67
21.10.2009	998.58	16.44	1 275.4	313.46
	3.4%	6.1%	3.0%	11.6%

OJSC «Seligdar»

Market essentials /October 2009/

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