Latest Gold Correction a Buying Opportunity

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". . .the show of solidarity amongst the leaders is leading to some irrational exuberance in equity markets and has pressurized the gold market."

Gold fell 2.85% (silver -3.9%) last week as risk appetite returned due to the G20 communiqué. The selloff has continued in Asia this morning and gold fell to a low of $873/oz prior to rebounding somewhat.

The G20 agreement was long on rhetoric and lofty principles and short on concrete commitments and action. But the show of solidarity amongst the leaders is leading to some irrational exuberance in equity markets and has pressurized the gold market.

China greeted the G20 results with caution with officials saying that some of their main priorities were not addressed including their concerns regarding their exposure to the U.S. dollar and international monetary system's unhealthy reliance on the U.S. dollar as global reserve currency.

The much vaunted and poorly reported IMF gold sales were again trotted out (by the very anti-gold Gordon Brown) as a new initiative and this likely contributed to gold's short-term weakness.

An IMF spokesman said the proposed sale of 403 tonnes was already mooted last year and is not additional.

If IMF gold sales ever get the go ahead from the U.S. Congress, which remains doubtful in itself, the sales would be coordinated closely with CBGA signatories. Morgan Stanley's analysts said IMF gold sales are likely to be made "off-market" to help countries with huge dollar reserves, such as China, Japan and Russia, to diversify their reserve portfolio without disrupting the currency and gold markets.

Physical bullion buying is very strong at these levels as bargain hunters rightly view this latest correction as a buying opportunity. While we all hope for "green shoots of recovery" it is deluded and dangerously irrational to think that the worst is over for the global economy and financial system.

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