By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD rose once again on Wednesday morning in London, touching its best level in almost a month at $1378 per ounce as world stock markets pushed higher together with the US Dollar.
Crude oil prices on both sides of the Atlantic also rose, bucking a dip in the broader commodity markets, as the “spread” between Europe’s Brent contract and US West Texas Intermediate rose back to last week’s all-time records of $16 per barrel – a premium of nearly one fifth.
“UK inflation was the catalyst for [gold’s] move higher on Tuesday morning,” claims one London dealer in a note.
“Chinese Jan. Consumer Price Inflation was the main event for the day,” says MKS Finance’s precious metals team in Geneva.
“A surge in US import prices of 1.5% month-on-month during January further fuelled inflationary concerns,” reckons James Zhang at Standard Bank.
“Nevertheless,” he adds, “the upward momentum [in the gold price] is waning, as revealed in Asian trade which failed to push prices much higher. In addition, physical demand is absent as buyers have been driven away by the higher prices.
“This opens up a downside risk for gold and silver.”
The silver price on Wednesday morning again came within a few cents of $31 per ounce – less than 1% below Jan.’s new 30-year highs.
“All precious metals except gold look set to make new multi-year highs soon,” says Axel Rudolph at Commerzbank, and “silver continues to play catch up – up 13% in less than a month.
“Gold [could] be dragged along higher by the other precious metals,” Rudolph says in his weekly technical analysis for the Benelux bank’s clients. “But from a purely technical perspective we will maintain our toppish stance.”
Recording its highest London Gold Fix since Jan. 13th at $1374.50 per ounce on Wednesday morning, the price of gold in Dollars stood more than 4.3% above the 15-week low hit at $1318 late last month.
The falling Euro helped the gold price for French and German investors rise back after an overnight dip to its own one-month highs above €32,700 per kilo.
British investors looking to buy gold saw the price jump back up to £857 per ounce – some 1.1% higher for this week so far – after the Bank of England’s latest Inflation Report said consumer price inflation may reach a two-decade high above 6% in 2011, with the lowest “possibility” forecast now standing at 3% per year.
At least one per cent above the Bank of England’s legal target, the new forecast range means the Bank has had to extend the vertical axis on its published charts, note the FT‘s Alphaville blog.
UK gilts rose in price Wednesday, however, tracking other major-economy debt to nudge interest rates lower everywhere but Japan.
There, further falls in the price of government debt drove 10-year Toyko bond yields up to a 10-month high at 1.35%.
Bank of Japan interest rates have been held near zero since 2001. The economy shrank for the first time in more than a year at the end of 2010.
“Given the level of [public] debt that Japan faces, at some point rates inevitably need to rise,” says Bank of America-Merrill Lynch analyst Bin Gao. “The demographics will not produce enough savings to support the bonds.”
Private research shown to BullionVault on Tuesday says 97% of Japanese government debt is held by domestic investors – now worth some 180% of annual economic output, and the highest debt-to-GDP ratio of any major economy.
Japanese households meantime hold some $14 trillion worth of Yen-denominated bank deposits, the research says.
“If you are Japanese investor, your hourly [Gold Price] chart looks like a nice straight line pointing 45 degree to the upper right corner of your screen,” says one Asian dealer in note today.
Tokyo gold futures expiring in Dec. 2011 have gained more than 6.1% so far this month.
The Nikkei stock-market index ended Wednesday 5.5% higher from the end of Jan.
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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