Gold Jumps, Wipes Out Week’s Loss After Disappointing Nonfarms Report, But “Strong Dollar a Problem” as Trend “Remains Bearish”

June 4th, 2012 No Comments   Posted in Gold

London Gold Market Report

U.S. DOLLAR prices to buy gold climbed back above $1600 an ounce on Friday, after disappointing US jobs data was then followed by news of a slowdown in American manufacturing activity.

The ISM Manufacturing Index fell to 53.5 in May, down from 54.8 a month earlier (a figure above 50 indicates an expansion in manufacturing activity).

The ISM release followed several examples of disappointing manufacturing data from around the world, with signs of slowdown in China and ongoing contraction in the UK and the Eurozone.

Friday afternoon’s London gold Fix was $1606 per ounce, the first Fix above $1600 since May 8.

Earlier in the day, gold spiked immediately after the release of worse-than-expected US nonfarm jobs data.

The US economy added 69,000 nonagricultural private sector jobs in May, according to official data published Friday, compared with analysts’ forecasts for 150,000.

The US unemployment rate meantime ticked higher to 8.2% – up from 8.1% in April.

Gold’s jump wiped out its losses for the week. By Friday afternoon in London, prices to Buy Gold looked set for a 0.6% gain on where they started the week.

Silver also spiked higher following the US jobs news, climbing to $28.14 per ounce – though this was still 1.4% down on the week.

“The larger trend [however] remains bearish,” says technical analyst Russell Browne at bullion bank Scotia Mocatta.

A day earlier, gold’s final London Fix of May 2012 was down 5.6% on April’s last Fix – the third monthly fall in a row by Gold Fix prices. Spot Gold meantime – which back on February 29 fell by $100 an ounce after the PM Fix – ended May by making fourth straight monthly loss in Dollar terms.

By London Fix prices, gold has not fallen four months in a row since summer 1999.

In contrast with gold, European stock markets fell following the nonfarms release, extending their losses from Friday morning’s trading.

Earlier in the day, German 10-year Bund yields fell to a fresh all-time low below 1.15%, while on the currency markets the Euro sank to its lowest level against the Dollar since June 2010.

Spain’s banking system meantime saw €97 billion of capital leave the country in the first three months of 2012, according to figures published Thursday evening by the Spanish central bank. The Spanish government, which this week saw its implied 10-Year borrowing costs breach 6.7% for the first time since November, is trying to raise €19 billion to rescue nationalized lender Bankia.

The International Monetary Fund yesterday denied rumors that Spain’s government has approached it for a bailout.

Over in Ireland, votes were being counted Friday following yesterday’s referendum on whether or not to ratify the European Union’s new fiscal treaty, which would impose limits of government borrowing.

“We are very, very confident [of a 'Yes' vote],” said Lucinda Creighton, Ireland’s European affairs minister.

Press reports suggest around half of those eligible to vote in the referendum actually did so.

In Greece meantime, the biggest pro-bailout party New Democracy leads second place Syriza in the opinion polls, with just over a fortnight to go until the June 17 elections, news agency Bloomberg reports.

Syriza’s leader Alexis Tsipras said Friday that the bailout agreement is a failure, reiterating that Syriza would reverse some of the Greek government reforms if elected, including privatizations and cuts to public sector wages.

“The [bailout] memorandum equals a return to the Drachma,” Tsipras added.

The Eurozone’s purchasing manager’s index for manufacturing, a survey indicator of whether the sector is expanding or contracting, fell from 45.9 in April to 45.1 last month, figures published Friday show. A PMI above 50 indicates sector expansion.

Germany’s PMI meantime fell to 45.2 in May – down from 46.2 a month earlier.

The Eurozone’s unemployment rate meantime remained at 11.0%.

On the currency markets, the Euro fell to a two-year low against the Dollar Friday morning, remaining below $1.24.

European Central Bank president Mario Draghi warned Thursday that the current Eurozone structure is “unsustainable”.

“At the moment, Europe and downside risks to the Euro are the problem for gold,” says Michael Lewis, head of commodities research at Deutsche Bank.

“Dollar strength is going to be the big problem over the next few weeks.”

The US Dollar Index, which measures the currency’s strength against a basket of other currencies, hit its highest level since August 2010 this morning.

Here in the UK, manufacturing activity fell into contraction last month. May’s manufacturing PMI was 45.9, compared to 50.2 in April. The consensus forecast among analysts ahead of Friday’s PMI publication was for a figure just below 50.

The disappointing UK PMI figure “has increased dramatically the likelihood of the [Bank of England] announcing more quantitative easing next Thursday,” reckons Deutsche Bank’s chief UK economist George Buckley.

Manufacturing activity also slowed in China, the world’s largest source of demand to Buy Gold in the first three months of 2012.

May’s official PMI figure was 50.4, down from 53.3 in April. HSBC’s PMI meantime, which looks at smaller Chinese firms, showed ongoing manufacturing contraction, falling to 48.4 from 48.7.

In India meantime, traditionally the world’s biggest gold buying nation, gold demand for 2012 will fall by 4% by volume compared to last year – but will be 4% up in value terms – according to a report published by researchers at Morgan Stanley.

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Too Many Cars, Too Few Spaces

June 1st, 2012 No Comments   Posted in Finance

Government debt is so good for you, even the second- or third-best will do in this rush…
“ONCE PEOPLE decide that German and US bonds are not such a great store of value,” said one BullionVault user I spoke to last week, “the rush to find parking spots in a very small car-park will be on.”

Pending a rush to buy gold or silver however, that same fight for parking spots continues inside the government bond market. French, Dutch, Austrian and Finnish government debt just got annexed as the latest scrap of waste-ground for global capital to park its Mercedes.

“There’s a rotation out of the safest assets into the next best,” says Eric Wand, fixed-income strategist at the Lloyds Banking Group. “Treasuries yields have been distorted to levels not consistent with its economic data,” says Marc Ostwald at Monument Securities, also here in London and also speaking to Bloomberg.

On fixed-income bonds, yield moves inverse to price, and yields on French 10-year debt have sunk to a fresh record low of 2.35% per year. Maybe investors think new Socialist president Francoise Hollande – already busy raising the minimum wage and imposing a maximum salary for national industry chiefs of 20 times their lowest wage-earner’s pay – is a safe bet for the return of, let alone on capital.

More likely they’re desperate, buying Paris’s promises because they’re already max’ed out on Berlin’s, and Washington’s, and even London’s. Yes, long term, it is hard to imagine a bigger “sell” than 10-year UK gilts yielding 1.57%. That rate of interest is barely half the current rate of annual inflation, and it’s only one-third the average yield paid by Britannia since 1750.

But fact is, supply is too tight for demand, despite the peace-time record debt mountains built across the rich West and Japan. Money managers and corporate treasurers daren’t leave cash in the bank; the bank might implode. They daren’t buy equities with both hands; look what the Euro-crisis is doing to stocks. Business investment would require faith in the business environment. Commodities are no longer the brainless “no brainer” of the early 21st century, for who can say what is really happening to China’s demand growth?

Instead of money, risk or stuff, retained savings worldwide are choosing government debt – hefty, near-cash debt which is in truth an obligation of the “safe haven” sovereigns. Those safe havens already face record peace-time obligations. But a call on the taxpayer is better than a call on banking, growth or production right now. At least you know the poor taxpayer will still be there 12 months from now!

And so strong is demand that it now plainly outstrips supply. The mismatch is creating absurd anomalies like the zero-yield offered last week on Germany’s latest 2-year Schatz bonds, and the 1.57% yield on 10-year US Treasury bonds.

Big-name Keynesian economists think Big Government should plug that gap by issuing new mountains of debt, piled on top of the record peace-time debts already built up.

“A dominant feature of the world economy is that there are not enough safe financial assets (or, rather, financial assets generally perceived as safe) in the world economy,” explained Berkeley professor Brad DeLong back in March.

“Each time the US government creates another Treasury bond it adds value to the world economy.”

Put another way, “The shift of debt away from over-indebted households to a federal government that is not borrowing-constrained is a big plus; it’s setting the stage for recovery,” reckons Paul Krugman of Princeton, the Nobel prize and New York Times.

Plenty of people gasp at such ideas…that government debt adds value to the world economy, or that piling new debt on debt can possibly speed the recovery. But those people have either chosen to buy gold or silver – and now have to take their chops like everyone else, watching the precious metals fall despite what seems yet another perfect storm, and after being proven all too right for the past decade and more. Or they can sell US Treasury bonds short in the market, putting their money where their big mouth is.

You risk making a bad hit-and-run if you dare to go short, however. Because retained savings the world over – terrified by the apparent “free market” crisis starting 5 years ago – continue tearing into the State’s parking lot of prior obligations. For now.

Let’s see what happens if…or more likely when…the State scratches its own car-keys down the side of all those shiny new cars.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

What Does the Bank of England Think It’s Doing?

February 15th, 2012 No Comments   Posted in Finance

Quantitative easing has not worked as advertised so far. Why push ahead with more…?

“YOU’VE lost control – Bank of England takes over,” says the Bank of England’s cute little game for school-kids if you let the hot-air balloon you control crash into the ground, rather than happily floating it around the 2.0% annual inflation target.

But if the Bank loses control in the real world? Are there grown-ups ready to take over? And what if the Bank purposefully drives its balloon up into the clouds, so far above its 2.0% inflation target – its primary mandate, set by Parliament, and over-riding the secondary aim of “support[ing] the Government’s objectives for growth and employment” – that wage-earners, savers and consumers alike start hurling themselves out of the basket?

We shall never know what would have happened without near-zero interest rates and the first £273.5 billion of quantitative easing. But as the Bank sticks at 0.5% for the 36th month in succession – and starts creating a further £50 billion in new money – we can say what has happened with them:

  • For every £1 the Bank of England created from nowhere since March 2009, the total UK money supply grew by only 35p;
  • For every £1 million the Bank has created, more than two people have become unemployed;
  • Finance-sector salaries outpaced the average wage (rising 8.8% vs. 5.0%), but still lagged the cost of living (up more than 11% on the Consumer Price Index);
  • The average house price rose almost 10%, while the FTSE All-Share index rose by nearly two-thirds. Both were beaten by gold (up 70%) and silver (130%).

Was this really the aim? Let’s ask the Old Lady herself.

“The purpose of the purchases [according to the Bank of England's own information] was to inject money directly into the economy in order to boost nominal demand.”

Two ideas there then – injecting money into the economy, and boosting demand. Neither are part of the Bank’s primary mandate, remember, but both ideas have stuck, albeit in the popular imagination more than reality. “Bank injects £50bn into economy,” announced the BBC last week, “to give a further boost to the UK.”

But while the Bank has already created and spent more than £273 billion on buying government bonds in the last three years, the UK money supply (using the broadest measure, known as M4, and covering all the money in banking deposits) has risen by only £97 billion. Gross domestic product has scarcely budged either, rising by only 1.7% (to the end of September) despite the 4.9% actual growth in M4 money.

So for all the good it has done, where did the Bank stick this injection?

Well, “The asset purchase programme is not about giving money to banks,” stresses the Bank in its version of Quantitative Easing Explained. “Rather, the policy is designed to circumvent the banking system.”

Not that the programme does side-step the banks. Instead, as the Bank of England admits elsewhere, it sees the Old Lady “electronically create new money” and then use it to buy UK government bonds directly from the banks, whether held on their own account or on behalf of their clients such as investment funds and insurance companies. Still, handed this new cash in return for the gilts that they sell, “These investors typically do not want to hold on to this money, because it yields a low return,” says the Bank. “So they tend to use it to purchase other assets, such as corporate bonds and shares. That lowers longer-term borrowing costs and encourages the issuance of new equities and bonds.”

Simple, right? The Old Lady wants to cut interest rates and boost the level of capital raised by businesses – private non-financial corporations as the Bank calls them, those companies outside finance and banking which everyone’s so sure had nothing to do with the bubble or bust. Indeed, “the objective of QE is to work around an impaired banking system by stimulating activity in the capital markets,” according to Charlie Bean, the Bank’s deputy governor for monetary policy. And yet PNFCs have shared little in the flood of money issued by the Old Lady’s computer-key strokes.

Since March 2009, total capital issuance by private non-financial firms has totaled £44.5bn – greater than the £34.0bn they raised over the preceding three years, but that was a time of boom, not bust, so the Bank’s stated purpose still begs the question. And the total raised is still nothing compared with the total £275bn “injection”.

Once again, then, where did the Bank’s “injection” go – and was that its aim?

“Money is not growing quickly enough to keep inflation close to the 2% target,” says the Bank of England in an educational briefing for schoolchildren. “The Bank is injecting money into the economy to boost spending to meet the inflation target.”

Okay, so here’s an outcome the Bank should happily claim for its own. But whether boosting inflation is a good thing or not, inflation has in fact been well above the Bank’s official 2.0% target since 2009. So far above, that governor Mervyn King keeps having to write open letters to the government – as he must under the policy framework established when the Bank gained full control of interest rates in 1997 – explaining why he’s repeatedly let inflation breach the upper 3.0% limit for the last 24 months in succession.

The risk of under-shooting inflation looks awfully thin, and the perils of under-shooting might seem academic as well. Because incomes have failed to keep up with inflation – the very opposite of those “second-round effects” so feared by the Bank under Sir Mervyn when it failed to raise interest rates in the face of the banking bubble that started a decade ago. Today, even indebted households have failed to benefit from the drop in what money will buy. Because inflation only eats into debt when a rising income lets you pay it back faster.

Maybe the Old Lady knows what she’s doing. Or maybe she thinks “two” now means “three-point-eight”. Or maybe she’s just losing sight of her 2.0% inflation target, fast becoming a speck in the distance from her hot air balloon. Or maybe – just maybe – now that the Bank holds so many billions of pounds in government debt, it daren’t let the total start falling, for fear of a train-wreck in the gilt market. Once you pop, you just can’t stop, and it did after all switch to buying fewer long-term gilts and more medium-term debt at this month’s £50bn announcement. Which would fit with fretting about a pile-up of maturing debt in the “medium term”, rather than trying to suppress interest rates on 30-year gilts.

Either way, quantitative easing has failed to work as advertised to date. Reviewing the evidence so far, we’re genuinely none-the-wiser about why in the hell the Bank is now pushing ahead with more.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Tests $1500, Silver Extends Worst Plunge in 24 Years, But Ultra-Low Interest Rates “Really Favor Precious Metals”

May 6th, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

PRICES in LONDON’s wholesale spot gold market briefly dipped beneath $1500 per ounce the first time in a week on Thursday in London, bouncing to $1509 – and recovering faster vs. the Euro and Sterling – as both the UK and Eurozone central banks held their interest rates unchanged, significantly below the rate of inflation.

The Euro lost 1¢ to the Dollar on the news, helping the gold price in Euros reverse one-third of this week’s 4.4% drop.

Spot gold priced in Sterling rose to £916 per ounce, less than 3% off Monday morning’s sudden spike a record high above £940.

“The underlying pace of monetary expansion remains moderate,” said ECB president Jean-Claude Trichet today, failing to repeat April’s 0.25% hike.

“We have solid anchoring of inflation expectations.”

“The [Bank of England] may not do anything until November,” reckons former central-bank official David Tinsley at National Australia Bank in London, quoted by Bloomberg.

“The risks are potentially that they may be on hold for longer than that.”

Trading 5% below Monday’s short-lived spike to record highs above $1576, the spot gold price had earlier slipped on Thursday morning as Asian and European stock markets extended Wednesday’s fall, taking the FTSE100 here in London down to a two-week low.

Commodity prices fell once again meantime, and silver bullion sank for the fourth day in succession, losing 22.5% against the Dollar since Thursday last week – the sharpest plunge since April 1987.

“If [other] commodities go down by 20%, we expect it to be short-lived,” said Walter de Wet of Standard Bank to Bloomberg in London on Wednesday.

“Because this is not the end of the commodities boom, and we’re not at the end of the cycle.

“Monetary policy in general still remains very, very accommodative and real interest rates very low, even in countries like China, where inflation is much higher than the deposit rate.

“That really favors precious metals,” said de Wet to the newswire.

Over in Asia on Thursday, where the Tokyo stock and futures exchanges remained closed for the Golden Week holiday, “the level of activity is even less than yesterday,” one Hong Kong spot gold dealer, noting that “exchanges around the world have been rolling out various measures to control their operational risk” in the face of huge volatility.

From Monday next week, the Shanghai Gold Exchange will raise the initial margin paid on new positions in its popular gold and silver futures to 18% of contract value.

A futher hike in margin requirements by the United States’ CME will see speculators in US silver futures charged $21,600 per contract – up by 84% from a fortnight ago.

“Silver investors dump futures as Comex boosts speculator trading costs,” says a headline at Bloomberg.

Yet the total number of outstanding silver contracts now open, however, has actually risen over the last week, swelling by 6.2% from Thurs 28 April.

Daily trading volume has gone the other way, standing one-fifth lower on Wednesday from a week before.

“India is already set to double its [private] silver purchases to 1,500 tonnes this year,” reckons Mumbai analyst Harminder Baweja, quoted by MineWeb.

“There are reports that [corporate] reserve managers in China are [also] using gold to diversify their exposure to the Dollar. All these point to higher imports in both the countries.”

Here in London, the volume of silver bullion held in trust at J.P.Morgan’s vaults for shareholders in the New York-listed iShares ETF fell again on Wednesday, shrinking by more than 12% from this time a month ago to 10,387 tonnes.

Adrian Ash

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Silver Plunge Flirts with 20% Bear Market, “Gold Favored” as Mexico Buys 93 Tonnes

May 4th, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE OF GOLD held tight as silver prices sank once again in London on Wednesday morning, sitting above last night’s two-session low of $1528 per ounce while silver dropped to new 3-week lows, flirting with the technical definition of “bear market”.

New data showed the Bank of Mexico buying 93 tonnes of gold bullion for its reserves in Feb. and March, the heaviest central-bank buying since India’s 200-tonne purchase from the IMF in Oct. 2009.
Brent crude oil meantime stabilized at $122 per barrel, but broader commodity indices fell together with Asian and European stock markets.

Major-economy government bonds also fell – driving US Treasury yields higher from a 6-week low – as S&P called a UK rate rise “almost certain” over the next 3 months.

The European Central Bank “could be more hawkish” again tomorrow, reckons fixed-income strategist Patrick Jacq at BNP Paribas, perhaps flagging up another 0.25% rate-rise for June.

“A reversal of 20% or more, returning [silver prices] to levels in the mid-$30s, would not surprise us at all,” says UBS metals strategist Edel Tully in London.

“We remain significantly more friendly to gold than to silver.”

From last week’s new 31-year and all-time record highs, silver today bottomed some 18.6% vs. the Dollar and Sterling respectively.

Priced in the Euro, silver bullion traded more than 20% below last Monday’s high, meeting the technical definition of a bear market.

Commenting on Mexico buying gold, “There’s an appetite now among emerging economies with large forex reserves to add to their gold reserves,” the FT quotes Mitsubishi precious metals strategist Matthew Turner.

“Gold is seen as one way in which to diversify away from the Dollar- or Euro-denominated assets.”

The Euro today traded back up to the 17-month high of $1.4880 first hit a week ago, as Portugal secured a €78 billion line of credit from its European Union partners.

Smaller than first proposed, the bail-out is still pending ratification by the Lisbon parliament after next month’s general election.

New data meantime showed Eurozone retail sales shrinking unexpectedly in March. UK money-supply growth and new mortgage approvals both lagged analyst forecasts.

The Pound also rose vs. the Dollar, recovering one-third of Tuesday’s 2¢ drop but failing to push the gold price in Sterling much below £930 an ounce – a new all-time high when first reached on Friday.

Doubling inside 6 months, however, “No asset in history has risen so sharply so rapidly [as silver prices] and retained most of its price appreciation,” says New York’s CPM Group metals consultancy.

“A sharp retracement [to $37 per ounce] seems more likely than not at this point.”

“Others may choose to trade here and may enjoy the violent random nature of the [silver investment] market,” says Dennis Gartman of the eponymous $5,000-per-year advisory letter, also quoted by the Wall Street Journal.

“We, as always, shall avoid it. Betting on the red in Vegas is far, far safer.”

George Soros’ flagship hedge fund has apparently quit its sizeable gold and silver positions, the Journal reports.

Previously controlling the 7th largest position in No.1 exchange-traded gold trust the SPDR Gold fund, manager of Soros’ $28 billion portfolio Keith Anderson now sees a lower risk of deflation and thus a lower risk of government inflation in response, according to the newspaper.

Hedge fund manager John Paulson – whose funds hold the largest single position in the New York-listed gold ETF – yesterday confirmed his bullishness on gold, and told a group of investors that the metal’s price could reach $4000 per ounce.

“Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter,” says the WSJ.

Adrian Ash

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Rises as US Rates Set to Stay “Exceptionally Low”, Silver Falls in “Post-Fireworks” Trade

April 28th, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

THE WHOLESALE MARKET price to buy gold rose but silver held flat in Asian and London trade on Wednesday, as the Dollar fell, European equities rose, but “peripheral” Eurozone debt sank again, driving credit-default insurance costs up to new record levels.

Crude oil and natural gas prices bucked a drop in the broad commodities market.

US government bonds ticked lower, nudging yields higher, ahead of today’s Federal Reserve interest-rate decision.

“[Although] the Fed is unlikely to embark on further quantitative easing…real interest rates remain exceptionally low and government borrowing high – two factors core to our bullish view on gold.
says the daily note from Standard Bank’s team in London.

“Short term however we would not be surprised to see gold dip lower.”

For the second day running, gold recorded a higher London Fix on Wednesday morning than the previous PM Fix, while silver recorded a drop.

Since the start of 1968, the two metals have moved in the same direction on 69% of all London trading days.

Only once has gold risen but silver fallen for 3 days running, back in May 2003.

“[Precious metals are] basically a struggle between those who think the uptrend has resumed and those who think the retracement is not yet finished yet,” says one Hong Kong dealer in a note, calling Wednesday’s Asian gold and silver trading “quite subdued” compared with the “fireworks” seen since Good Friday.

“Silver’s outperformance is taking a short term breather,” reckons Axel Rudolph in his latest Technical Analysis Research for Commerzbank clients.

“We anticipate a recovery towards the $50 mark in the course of this week.”

Stating that Tuesday’s New York close “confirmed [Monday's] sell signal” for both gold and silver, “the Gold/Silver Ratio has shot higher,” notes the latest technical analysis from Scotia Mocatta.

Falling to a 28-year low at 32.5 last week, the ratio of gold prices to silver prices rose to 33.3 in London trade on Wednesday morning.

“It’s consolidation,” Reuters quotes Matthew Turner at Japanese metals conglomerate Mitsubishi.

“Gold has done a bit better than silver over the last couple of days, but we’re still in a holiday period here in London so trading volumes are not as high as normal and I don’t think there will be a huge move.”

The lethargy in Wednesday’s Asian and London markets contrasts with exchange-traded dealing in New York silver, according to a report in the Wall Street Journal.

“Volume in the silver ETF on Monday reached a record 189 million shares, compared with an unusually low 65 million for the SPDR [Gold Trust ETF],” says the WSJ.

“Trading in the silver ETF was five times that of the 37 million daily average of the first quarter, and blew past its previous daily peak of 149 million shares set in early November.”

Gold futures trading has also lagged a sharp rise in silver-contract volumes, says the Journal. Daily volume in silver futures has more than tripled so far this month compared with April 2010.

“Total outstanding contracts in the silver-options market also reached a record on Monday.”

Monday also saw the iShares SLV Silver ETF hit a new record holding of 11,390 tonnes, before slipping back 1.7% by last night’s close.

Here in London today, the GBS gold ETF announced only its fifth increase in bullion holdings for 2011 to date, with an additional half-tonne of gold swelling the trust’s total to a two-month high of 115 tonnes.

“There are risks in being out of markets as well as in them,” says The Daily Telegraph’s personal finance editor Ian Cowie on his blog, “and today’s bullion bears must bitterly regret calling the top of this bull run all the way up.”

Over in the forex market ahead of the Fed’s announcement on Wednesday – expected to leave both rates and the latest $600bn tranche of quantitative easing unchanged – the Euro and British Pound both touched new 16-month highs vs. the Dollar.

European investors looking to buy gold saw the price little changed from last week’s finish. Euro and Sterling Silver prices traded more than 4% lower.

New data meantime pegged UK economic growth at 0.5% during the first quarter, in line with analyst predictions. So too was this month’s German price inflation, rising to 2.4% year on year.

New Eurozone industrial orders missed consensus forecasts for Feb.

Adrian Ash

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Speculation Called “Routine” as Crude Oil Rises, US Ranked 4th Riskiest Sovereign Debtor

April 27th, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE OF GOLD reversed an overnight dip beneath $1500 per ounce in London on Tuesday morning, trading within 1% of Monday’s new record high at $1518 as European stock markets rose together with major government bonds and energy prices.

Following yesterday’s dramatic Asian trade and greater-than-7% price range, “Silver showed further weakness” according to one Hong Kong dealer, “stretching [his] expectation about how volatile it could be.”

At today’s London Fix – set at $45.48 per ounce – the price of silver bullion had only been higher on four days in history, three of them amid the Hunt Brothers’ Corner of Jan. 1980, and the other being Thursday last week.

“Despite silver setting new nominal record highs in the past week, the Comex net long position [in silver futures contracts] is far from record levels,” says the latest Precious Metals Weekly for ABN Amro from the VM Group in London, “implying that [London-centered] physical trade is driving the price.”

Friday and Monday’s Bank Holidays in the US and UK meant “markets had a chance to go wild on thin volumes,” says one London dealer, but after surging to new record highs gold settled last night at $1510 per ounce – the first drop in 8 trading days, as Russell Browne at Scotia Mocatta notes.

Silver saw a “long legged Doji” chart pattern, Browne adds, “warning of a possible reversal” by touching new highs intra-day but falling back to end the session unchanged.

“There is some good, old-fashioned…[and] routine speculation…in the few commodities that can be stored, like gold,” writes Jeremy Grantham, co-founder and chief investment strategist of the $107 billion GMO asset manager, in his latest letter to clients.

“[But] I believe this is a small part of the total pressure on [raw material] prices, and the same goes for low interest rates. [Instead] we have gone through a profound paradigm shift in almost all commodities, caused by a permanent shift in the underlying fundamentals” as limited supply meets vastly increased demand from Asia’s fast-emerging economies.

“Statistically,” says Grantham, “most commodities are now so far away from their former downward trend that it makes it very probable that the old trend [of steadily falling input prices] has changed.

“[This is ] perhaps the most important economic event since the Industrial Revolution.”

Monday saw shares in Barrick – the world’s largest listed gold mining stock – lose 5% after it successfully bid 14 times last year’s earnings at take-over target Equinox, a copper miner.

Asian investors also sold Chinese loser Minmetals, however, driving it 12% lower in Hong Kong, after it said “the price offered by Barrick is above our most optimistic assessment of value… [and] would, in our view, be value destructive for [our] shareholders.”

Over in Venezuela, meantime, 20 armed robbers broke into, seized control of, but failed to steal any gold from the El Callao facilities of Russian gold mining firm Rusoro.

“They did get into the storage area but they were unable to open the armored security safes” before fleeing the scene, Rusoro’s local security chief told Globovision TV.

In the credit markets, a new report from Deutsche Bank ranks the US government as the world’s fourth riskiest sovereign borrower, behind Greece, Ireland and Portugal, and just ahead of Italy.

Here in London on Tuesday, UBS’s City office asked the decisions committee of the International Swaps & Derivatives Association to say whether the Irish government’s new Credit Institutions Act signals a “restructuring credit event” for Anglo Irish Bank.

The Act orders AIB to buy back certain “subordinated liabilities” from bondholders, potentially triggering bets against the bank’s debt known as credit default swaps.

Yields offered to new buyers of Irish, Greek and Portuguese debt all rose to new post-Euro records on Tuesday morning, as prices continued to fall.

Adrian Ash

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Shift to Physical Accelerates as Gold Rises in Dollars Only, Silver Adds 7.7% for the Week

April 22nd, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

THE WHOLESALE PRICE of gold broke fresh US Dollar highs ahead of the long Easter weekend in London on Thursday, but fell against all other major currencies, unwinding this week’s sharp gains entirely for Euro buyers.

The price of gold in British Pounds slipped 1.4% from yesterday’s new all-time highs.

Silver prices extended their Dollar gains to 7.7% for this week alone, breaching $46 per ounce and also reaching new multi-decade and all-time highs vs. the world’s other major currencies.

Goldman Sachs yesterday raised its margin requirements for clients wanting to sell the SLV iShares Silver ETF short to a three full percentage points.

Bullion bank Scotia Mocatta on Wednesday adjusted its “registered” and “eligible” stockpiles at Comex depositories, holding back more than $225m of bullion from being deliverable against futures contracts in a fully client-owned position.

London-listed GBS – the UK’s first exchange-traded gold ETF – today reported its fifth redemption of shares in exchange for physical bullion in as many weeks.

“One unidentified company has the potential to own up to 89% of the lead in warehouses monitored by the London Metal Exchange,” Bloomberg reports, “a position worth $704 million at the current price.”

China’s state-owned Sinopec oil giant meantime suspended all exports of refined oil products, according to the state-run Xinhua news agency, aiming to “to maintain domestic market supplies of refined oil products”.

“Rather than continuously roll the futures contracts, it just became easier and more economical for us to take…the bullion,” said University of Texas investment officer Bruce Zimmerman to CNBC on Wednesday, explaining the US’s second-largest academic fund’s decision to switch from gold futures to a fully allocated gold position.

“The role gold plays in our portfolio is as a hedge against currencies,” Zimmerman said, noting UTIMCO’s large fixed-income exposure.

“The concern is that we have excessive monetary and fiscal stimulus.”

The Euro today hit a new 16-month high vs. the Dollar at almost $1.4650, while world stock markets rose together with major-government bond prices.

US crude oil ticked above $112 per barrel.

“The key element determining gold’s near-term direction right now is the US Dollar,” Bloomberg quotes Edel Tully at Swiss banking giant UBS’s London office.

“[But] sovereign debt concerns in US and Europe, along with inflation fears, provide a good backdrop for gold.”

The International Monetary Fund said yesterday that the global banking sector faces a “wall of maturing debt” totaling $3.6 trillion in the next two years.

Last week it said that developed-world governments have to raise 27%-worth of their annual economic output from the bond markets in 2011, “heightening competition for scarce funding resources.”

Adrian Ash

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.



Gold Slips, “Huge Speculation” Makes Asian Silver Market “Dysfunctional” as China’s FX Reserves Top $3 Trillion

April 15th, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

LONDON’S WHOLESALE-MARKET price for gold fell against a rising US Dollar in London on Thursday, dropping back to $1454 per ounce but rising for Euro and Sterling buyers as world stock markets fell alongside commodities.

Major-economy government bond price rose, nudging 10-year US Treasury yields down to 3.44%.

The price to buy silver also fell back Thursday morning, dropping 2.0% after coming within 50c of Monday’s new 31-year highs.

“The interbank silver market [in Asia] is dysfunctional” says one Hong Kong dealer’s note. “Liquidity is getting worse while the price action is getting more exaggerated as a result.”

With ever-more money looking to buy silver, “The furiousness of such moves has been increasing in the past two weeks…[and] the flow in/out of silver is excessive with respect to the capacity of the market.”

Speaking to BullionVault from Chennai about India’s current retail demand to buy silver, “People believe the rumors that silver is going ballistic even from this level,” says Daman Prakash Rathod of MNC Bullion. “[There's] huge speculation here as people have money to invest in physical buying.”

Having earlier heard clients identify the equivalent of $42 per ounce as a key profit target, “On the contrary, $42 silver revived the frenzy of buying.
“It’s a bit calmer now after seeing the correction to $40.”

“The type of demand for silver that we have experienced in the last few months has never been seen before,” says Prithviraj Kothari, president of the Bombay Bullion Association, to the Financial Times.

“Demand has gone up 25% compared to a year ago as people are going crazy for silver because they think it will give them better returns than gold.”

The late-April festival of Akshaya Thrithiya marks the third most auspicious day in the Hindu calendar, and is typically seen as an auspicious time to buy silver and Gold.

“Gold could be supported by some buying interest from Asian countries,” reckons Ong Yi Ling in Singapore Phillip Futures, speaking to Bloomberg.

“Amid high inflation and a lack of investment alternatives, gold could be sought out as a store of value and hedge against inflation.”

The GFMS precious-metals consultancy yesterday said the gold price could easily hit $1600 in 2011, and that the market has most likely “already seen the lows” for the year at $1319 per ounce.

Analysts at French investment bank BNP Paribas this week revised their silver price forecast for 2011, predicting an average of $41.40 an ounce – nearly $6 per ounce above their March 10th forecast – thanks to “both the fabrication and investment sectors.

Thanks to such strong demand to buy silver, “it may end up being the top performer of the precious-metals complex in 2011,” says BNP. The bank warns that future rises in US interest rates may be discounted early by the market, however, “bringing a correction in silver prices earlier than assumed in our forecast.”

New US data on Thursday showed a sharp rise in Initial Jobless Claims but a fall in Continuing Claims.

Factory input prices rose less quickly than analysts feared, but Producer Price Inflation still accelerated to a 12-month high of 5.8%.

New data from China – now the world’s No.2 gold consumer market – meantime showed a surprise jump in bank lending, up by 26% in March from Feb.

Beijing’s central-bank currency reserves surged through the $3 trillion level, the State Administration of Foreign Exchange said.

On the latest official data, its 1054 tonnes of gold bullion reserves fell to just 1.6% of total holdings.

Adrian Ash

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


Gold & Silver Hold Near Record Highs as ECB Hikes, Portugal Requests Bail-Out, Real Rates Remain “Dangerously” Negative

April 8th, 2011 No Comments   Posted in Gold

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE of gold investment bullion held near Wednesday’s new all-time Dollar highs in London trade this morning, rising toward 3-week highs in Euro terms even as the European Central Bank made good on its promise to raise Eurozone base rates.

The ECB’s move came despite a formal bail-out request late yesterday from Portugal, currently under a caretake government and with a sovereign budget deficit equal to 8.6% of gross domestic product for 2010.

Western stock markets ticked lower early Thursday with crude oil, but government bond prices rose, nudging longer-term interest rates lower.

Silver prices held firm around $39.50 per ounce – a new 31-year high when breached Wednesday morning.

Claiming to be “ahead of the curve” today, ECB president Jean-Claude Trichet repeatedly stated his “core mandate” of providing “price stability for 331 million people” across all 17 nations in the single Euro currency union.

Set today at 1.25% per year, the cost of ECB loans for commercial banks remains sharply negative in real terms at less than half the pace of inflation pegged by the EuroStat data agency for March.

“We have lately been struck by the decline in gold’s sensitivity to fiscal crises among Europe’s peripheral economies,” says the latest weekly commodities analysis from French bullion and investment bank Natixis, noting the recent “strengthening” of the Eurozone’s EFSF stability fund.

“Investors no longer appear to be so concerned that defaults among Europe’s periphery will impact core countries…European investors have not been major buyers of gold since 2009, but given the volumes accumulated between 2008-9, there is increasing scope for some of this gold to find its way back onto the market.”

Gold investment through exchange-traded trust funds (ETFs) has fallen 4% by volume so far in 2011, according to Natixis’ math.

Gold futures trading by bullish money managers and investors has also fallen, with the “net long non-commercial” position dropping by 30% since Oct.

“Moms and dads are moving out, out of gold and into equities,” reckons Jonathan Barratt of Commodity Broking Services in Sydney, speaking to Reuters.

“But our expectation for gold moving higher has more to do with inflationary concerns, I think, particularly in China.”

Here in London, the Bank of England kept its key lending rate at a record low of 0.5% for the 25th month running on Thursday. On the latest UK data, that puts the real rate of interest – after Retail Price Inflation – at a negative 5.0% per year.

UK investors wanting to buy gold today saw the price rise £3 per ounce to £895, just shy of Wednesday’s four-month highs.

Earlier in Tokyo, the Bank of Japan held its key interest rate below 0.1%, surprising analysts with a further ¥1 trillion loan ($11.7bn) to the country’s earthquake-struck north-eastern region.

That takes the Bank of Japan’s total monetary response to the March 11th disaster to the equivalent of $394 billion.

The gold price in Japanese Yen pushed higher to fresh 28-year highs in Tokyo trade on Thursday.

“The most important issue here is Spain,” said Gabriel Stein, director of Lombard Street Research, commenting on the Portuguese bail-out for BBC radio on Thursday morning.

Spain, Greece, Ireland and Portugal make up less than 18% of Eurozone economic output, said Stein, but their banking sectors “are wholly dependent” on liquidity loans from the European Central Bank, accounting “for something like 60%” of the total.

“This [ECB rate rise] will hit them immediately.”

Some 85% of mortgage borrowers in Ireland and Spain are on variable rates, according to the European Mortgage Federation. That rises to perhaps 99% in Portugal, says the FT‘s Alphaville blog.

“Permanently negative real interest rates distort world financial markets dangerously,” writes Anders Åslund, a senior fellow at the Peterson Institute for International Economics.

Blaming the current “oil price shock” on sub-zero real rates across the world, “Central banks should face reality and raise their rates faster and higher,” says Åslund.

Adrian Ash

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Get Adobe Flash playerPlugin by wpburn.com wordpress themes
AWSOM Powered