By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD fell for the sixth session running vs. the Dollar in Asian and London trade on Tuesday, dropping to a near-two week low as the US currency rose and global stock markets fell hard.
The Gold Price in Euros, Sterling and Japanese Yen also slipped, but lost just 0.5% from last week’s finishes.
Broad commodity indices lost more than1% as crude oil futures dropped back to $83.50 per barrel.
The Silver Price fell to $25.35 per ounce, some 14% off last Tuesday’s 30-year record high, after the Chicago Mercantile Exchange raised margin requirements on leveraged silver traders for the second time in a week.
The CME also raised Gold Futures margins by 5.9%, effective close-of-play today.
“Gold had accelerated away from the uptrend line, but…is pulling back again from an overbought condition,” writes Phil Smith at Reuters Technical in Beijing today.
“The usual negative correlation with the Dollar is back in place, and [long-term] the Dollar is moving steadily to the downside.”
“While we still think that the overall environment, characterized by quantitative easing and inflation concerns, remains bullish for the precious metals, we wouldn’t rule out further long liquidation in the immediate term,”says Swiss refinery group MKS’s finance division, “with the Dollar’s strength creating a barrier to further gains for the time being.”
Latest data from US regulator the Commodity Futures Trading Commission, delayed until last night by Veteran’s Day, showed both speculative and commercial“industry-insider” traders bucking recent trends and reverting to type as the gold and Silver hit new record levels last Tuesday.
Speculative traders raised their bullish bets, while commercial traders grew their net-bearish position.
“At some unknown point, easy money turns into excess leverage, reduced deflation risk becomes inflation fear, fiscal stimulus becomes sovereign credit risk,” says J.P.Morgan’s asset-allocation group in a recent note, quoted by the Wall Street Journal.
“We can’t tell where this turn comes, but history warns us it tends to happen suddenly and violently. As investors, you can’t always focus on tail risk, but it makes sense to tilt portfolios toward them.”
New data today showed US factory-gate prices falling unexpectedly in October from Sept., while Capacity Utilization was also weak and Industrial Production growth flat.
Over in the UK, new data showed consumer price inflation rising to 3.2% annually in October, forcing Bank of England governor Mervyn King to write an open letter to the government, explaining why inflation is more than one percentage point above his official target once again.
Again, King blames January’s VAT tax rise, plus global commodity and UK import prices. Again, he promises to “stand ready to act” – with interest rates still at 0.5% for19 months running, the longest period of inaction since Bank Rate was“thrown in the bin” (as one academic historian put it) for 20 years after the Great Depression at 2.0%.
Again, and despite warning that inflation “is expected to remain above target for a year or so…indeed, [it] may rise further,” King cites “a margin of spare capacity” which will bring inflation back below target “in the medium term”.
Real interest rates for UK savers –after inflation – haven’t been this negative since 1978, with the Gold Price in Sterling rising 163% since the Northern Rock banking run of three years ago.
US interest rates, accounting for CPI inflation, have now been sub-zero – meaning a real loss of purchasing power for savers – in 58 months since 2002. The 1970ssaw negative real rates in 61 months in total.
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 mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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