By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD and physical silver whipped sharply in London trade on Tuesday, falling hard only to rally as New Zealand’s second-biggest city Christchurch was struck by an earthquake and Libyan dictator Colonel Gaddafi’s defiant appearance on state TV led to accusations of “genocide” and “the government killing its people” by his own diplomats in the Unitd States.
Silver dropped nearly $2 per ounce, erasing Monday’s 5.4% gain, in Asian and London dealing, rallying again near 31-year highs as world stock markets and commodity prices also hit massive volatility.
Brent crude oil rose above $107 per barrel. US oil contracts were set to re-open New York trade with a near 8% jump after Presidents Day.
“Problems in the Middle East are leading to a rise in the silver price,” says Suresh Hundia, president of the Bombay Bullion Association, speaking to the Hindustan Times.
But silver investing is suffering “irrational exuberance” reckons Mitsui analyst David Jollie in London, citing the phrase used by former Fed chairman Alan Greenspan to describe the early stages of the DotCom Bubble in the mid-1990s.
The silver price shows “some disconnect from the gold price,” says Jollie, noting that the ratio of gold to silver prices has fallen to its lowest level since the 1980s at 42:1.
European stock markets meantime bounced from an initial 1.5% drop on Tuesday morning, as the Euro currency reversed an early 1.5¢ plunge to $1.3520.
That rally in the single currency knocked the gold price in Euros back to €32,800 per kilo – some 1.7% below the near 6-week highs hit overnight.
Gold priced in Sterling spiked to £870 an ounce – an all-time record for UK investors when first touched in May and then June 2010.
“Geopolitical tensions in the MENA region continue to fester,” says Standard Bank in its daily gold and silver note, “keeping risk aversion elevated…and enhancing the appeal of safe-haven assets.
“In addition, the surge in oil prices is keeping fears of rising global inflation alive…Unlike Egypt, Libya is a significant oil producer. We maintain our view [first published on Feb. 3rd] that IEA and OECD countries should put their Strategic Petroleum Reserve (SPR) on a standby, ready to be released.”
Up to 10,000 of the estimated 1 million Egyptian nationals living in Libya were reported on Tuesday to be fleeing towards the border, where the Egyptian army has set up two field hospitals.
Three Turkish ships and three Italian air-force planes were heading to the eastern Libyan city of Benghazi, according to the BBC, to evacuate their nationals.
Two Iranian warships meantime entered the Suez Canal today, heading for the Mediterranean Sea for training with Syrian forces in what Israel calls a “provocation”.
“We expect the [precious] metals to pursue their bull run as safe haven buying in regards to the Middle East tensions should help maintain sentiment,” reckons today’s note from MKS Finance in Geneva.
Trading in Italian stocks was halted Tuesday after yesterday’s 3.6% drop, with analysts noting that Libyan investors own 7.2% of UniCredit.
Former state-owned oil company Eni – active in Libya since 1959 – today faced threats from anti-Gaddafi group ‘February 17’ to cut the Greenstream pipeline which runs from North Africa to Italy,according to the Rome press.
“[Middle East unrest] has clearly been a game-changer in the last couple of weeks” for gold and silver prices, reckons Daniel Major at RBS Global Banking and Markets, quoted by The Oman Tribune.
“If [new demand to Buy Gold] is not through the exchange-traded funds or a clear change in the net long on Comex [gold derivatives], it is most likely to be through the physical market, coin and small bar buying.
“I potentially wouldn’t rule out larger purchases by high net worth individuals on the back of the unrest we’re seeing.”
Middle Eastern gold jewelry demand fell sharply at the end of 2010 from a year earlier, new data from market-development organization the World Gold Council showed last week.
Gold investment in coins and bars, in contrast, rose 39% across the region, cutting the full-year drop in total gold demand from 7% to just 3% at 238 tonnes all told.
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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