Although the medium and long-term trend in gold remains very positive the better U.S. Employment figures may set up a short-term sell in gold which could bring the price back down to $940 level. JOHANNESBURG - Friday, August 07, was an important day for the financial markets as investors and traders eagerly awaited the U.S. non-farm pay rolls. Out of all the economic fundamental releases, the non-farm pay rolls which are released on the first Friday of each month 8:30 am EST is the most important indicator. It is one of the ways analysts gauge the strength of the U.S. economy by watching how many jobs are either created or lost. The U.S. Non-Farm Payroll report signaled that the recession may be over as the pace of job losses slowed to -247,000 in July which was the least since August 2008. It significantly beat expectations of -325,000 and helped lower the unemployment rate to 9.4% from 9.5% which should ease fears that it could reach as high as 10.0 % by the end of the year. Almost as soon as the report was released the EUR/USD fell by 130 pips from 1.4360 to 1.4230 and December gold (GCZ) fell $8 from $966 to $958. You may well ask, "Well, what has this got to with gold?" The answer is that because gold is influenced by a number of factors, it is important to understand inter-market analysis. Inter-market analysis helps traders identify and anticipate changes in trend direction and prices due to influences of other related markets. And, right now the two key drivers behind the gold price are the strength of the USD and the price of oil. If the USD weakens then we can expect a rise in the price of gold and if the value of the USD appreciates then we can expect a drop in the gold price. Although the prices of gold and oil don't exactly mirror one another, there is no question that oil prices do affect gold prices. If oil prices rise or fall sharply, investors can expect a corresponding reaction in gold prices, often with a lag. Although the medium and long-term trend in gold remains very positive, when the latest employment reports were released gold was trading at a key resistance level of $965. This may set up a short-term sell in gold which may bring the price back down to $940 level. However, the long-term fundamentals still remain extremely bullish. Earlier in the week Bloomberg reported that the U.K.'s Royal Mint doubled production of gold coins in the second quarter as demand surged for bullion to diversify investments. Output climbed to 16,910 ounces from 8,030 ounces a year earlier, according to data obtained by Bloomberg News under a Freedom of Information Act request. First-half production jumped 86 percent to 45,406 ounces, the figures show. First-quarter demand for official coins more than doubled from a year earlier, according to the World Gold Council's latest figures. Rand Refinery Ltd., the world's largest gold refiner, boosted coin output to the highest in about 23 years in January, while Austrian mint Muenze Oesterreich AG sold a record 1.5 million ounces of gold in 2008. Demand for physical gold as a store of value and hedge against inflation has increased as governments spend trillions of dollars to combat the worst recession since World War II. Bullion holdings in gold-backed exchange-traded products rose to records in the second quarter. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, were 1,120.55 metric tons on June 30, up 74 percent from a year earlier. Investment in the fund, which reached a record 1,134.03 tons on June 1, was little changed from the first quarter, although has dropped back a little since the end of the quarter. Nymex crude is currently over $72 a barrel after shooting up from below $62 last week as investors try to gauge whether a weak US economy justifies a further rally. The Energy Department's Energy Information Administration on Wednesday said crude inventories increased by nearly 2 million barrels last week, adding to the 5 million barrels put into storage the previous week. And the Institute for Supply Management reported that the services sector contracted more sharply than expected in July. The ISM showed that retailers, financial services, transportation and health care sectors, which account for 80 percent of US economic activity, fell for a tenth straight month. With the threat of rising inflation, investors around the world will turn to gold as a store of value. And, towards the end of August physical demand for gold should increase thanks to the Indian wedding season. If you wonder why investors are turning to gold it is important to understand the primary reasons for investing in gold. They are, because it is a hedge against inflation and against a declining dollar. It is a safe haven in times of geopolitical and financial market instability. And of course, it is a store of value and an excellent portfolio diversifier. There is some very exciting news for South African investors who like to own gold. For the first time since 1911, they are now legally allowed to own gold, silver and platinum bullion. Recently, while chatting to a Canadian associate of mine, we both agreed that the average investor in South Africa knows very little about the gold market despite the fact that for years this county was the premier producer of gold in the world. For example, here are some of the things we have heard. • The price of gold is determined by the value of the South African Rand. This is absurd. Gold is traded in US dollars around the world, round-the-clock, and the main centres for this include, London, as the great clearing house, New York and Chicago as the home of futures trading, Zurich as a physical turntable, Istanbul, Dubai, Singapore and Hong Kong and Mumbai as doorways to important consuming regions and Tokyo where the Commodity Exchange (TOCOM) sets the mood of Japan. • The two daily London Gold Fixes determine the price of gold. The first fixing took place on September 1919 when the price of gold was agreed at £4.18s.9d ($20.57). During the fix 4 large gold dealers agree on a price for all their buy and sell orders which usually run into large quantities of 400 troy ounce bars. The price that they all agree on is known as the fix. But, as soon as their transactions have been concluded, the price of gold continues to fluctuate • The price of Krugerrands is the same as the price of gold. The price of Krugerrands is calculated by taking the price of gold in US dollars and then converting it into Rands. Then, there is a premium added to this price which can vary from day-to-day. Technicals The medium trend for gold shows an upward trend from April this year. While we have seen a see-saw action from July, we can see the support levels have moved up from $880 to $905 to $920. The next short-term level is around $940 and if that can hold, then gold is poised to test $980 in the short-term. David Levenstein is an investment advisor who brings over 29 years experience of futures,equities, forex and bullion. He has traded equities, futures (commodities, equity indices and forex), precious metals (bullion and coins), for his personal interests as well as for clients. He has worked and lived in Los Angeles, Bangkok, Hong Kong, London and Johannesburg. commodity@wol.co.za

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