Gold not yet overbought, support $1197, 1171

Gold is currently trading near record nominal highs in dollars, euro and sterling at $1,185/oz, £717/oz and €786/oz respectively. New levels of resistance and support in dollars are $1,197/oz and $1,171/oz. In dollar terms gold reached a new record nominal high at $1,195/oz overnight in Asia.

News that the Sri Lankan central bank had bought a further 10 metric tonnes from the IMF and Russian intimations that they would further diversify into gold are increasing expectations of further central bank purchases.The Russian central bank increased its gold holdings by 2.6% last month. Their gold bullion reserves rose to 19.5 million ounces in October from 19 million ounces the previous month.

Russian central bank Chairman Sergei Ignatiev said that they had in the course of several years replenished their supply of gold with the goal of diversifying their gold and foreign-currency reserves and that gold's share in reserves has increased faster in 2009 than in prior years.

While on some metrics gold is overbought and due a correction, it has not reached the levels of overboughtness seen in previous rallies when it rose to as high as 30% to 40% above its 200-day moving average. Today gold's move has come from a very solid foundation and it is only some 20% over its 200-day moving average after the lengthy consolidation seen in the last 2 years.

The massive concentrated short positions on the COMEX have incurred huge losses and must be extremely worried by the wall of demand for physical metal coming from the institutional and central bank sectors creating a potential for short squeeze.

Silver

Silver is currently trading at $18.55/oz, £11.22/oz and €12.30/oz. Similarly silver is less than 30 % over its 200-day moving average. On previous silver rallies, silver has risen some 50% to 70% over its 200-day moving average. This shows that there is still room for further price increases. However, in the short term anything is possible and we could get a correction prior to silver playing catch up with gold's record nominal highs.

Platinum Group Metals

Platinum is $1,458/oz, palladium is $373/oz and rhodium is $2,525/$2,725/oz.

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