By: Adrian Ash, BullionVault
London Gold Market Report
BOTH GOLD and spot silver prices fell sharply in London trade lunchtime Thursday, finding a floor some 1.5% and 2.3% below this week’s record highs vs. the Dollar after European Central Bank president Jean-Claude Trichet said a Eurozone rate rise is “possible” next month.
The gold price in Euros dropped 0.9% in just 30 minutes to trade 2.5% below this week’s 7-week high of €33,500 per kilo.
US crude oil also fell, extending the 1.1% drop to $101 per barrel seen overnight after Venezuelan president Chavez offered to broker an international agreement to resolve Libya’s escalating civil war.
Speaking in Frankfurt today, ECB chief Trichet vowed “strong vigilance” on inflationary pressures for the first time since slashing interest rates to a record low amid the global financial crisis, and re-stated his “primary mandate to deliver price stability to 331 million citizens” of the 17-nation currency union.
“It is certainly not the right interpretation that this would be the start of a series rate rises,” he added at the ECB’s monthly press conference, made after the central bank voted to keep rates on hold at 1.0% for the 22nd month in a row.
The gold price in Sterling also fell, but lost only 1.1% as the Pound fell hard on further weakness in the UK’s PMI index of service-sector activity.
“Cable looks in need of support to me,” says one London trader in a note, claiming to spot a sovereign-government player in the Pound/Dollar market.
“We still expect the Bank of England will not announce a hike of 25 basis points until late 2011,” says the forex desk at Jyske Bank, forecasting “very much” disappointment for Sterling bulls and a 2011 low of $1.47 – a 10% drop from yesterday’s new 14-month highs.
“[It] might appear…that Bank Rate needs to rise faster than implied by the market yield curve,” said Bank of England policy-voter Charles Bean in a speech on Thursday.
“But the risk of inflation staying above the target into the medium term needs to be weighed against the downside risk to growth…Temporary deviations of inflation from the target are permissible…”
UK inflation has now out-run the Bank of England’s official upper tolerance of 3.0% per year for 13 months running on the Consumer Price Index.
Like gold, meantime, silver bullion also repeated and extended Wednesday night’s sharp drop, slipping 2.3% against the Dollar from Wednesday’s new 31-year high above $35 per ounce.
“Further up are the 36.00/50 Point & Figure targets, the 61.8% Fibonacci extension of the 2010-11 rise, taken from the January low…and the next higher Point & Figure target at 38.50,” says the latest technical chart analysis from Axel Rudolph at Commerzbank.
Silver’s “all-time high at 49.45…remains on the radar longer term. Last week’s low at 31.71 should now offer support, if retested at all that is.”
Silver’s industrial use is also supporting prices, according to a research note London market-maker Deutsche Bank’s analysts.
“Global growth is anticipated to remain a priority for [governments and central banks] over the course of the next several years, given the obvious negative consequences that slow growth would have,” they write, repeating their call for the silver price to average $50 per ounce in 2012.
“Key applications such as solar and electrical/electronics have impressive global growth profiles.”
Deutsche’s analysts see the gold price trading at $2000 next year.
Egypt’s “Supreme Council of the Armed Forces” meantime announced on its Facebook page that it “decided to accept the resignation” of prime minister Ahmed Shafiq – appointed in the dying days of Mubarak regime, which came to power in a military coup in 1981 – and “appointed [former transport minister] Essam Sharaf to form the new government.”
“Intensive negotiations” meantime continued in Libya – where Gaddafi loyalists took and then lost control of the Bregra oil terminal town on Weds – to free 3 Dutch marines captured while while trying to evacuate European consulate staff on Sunday.
Up to 90,000 people have now fled to Tunisia, the United Nations said, with many thousands more waiting to cross.
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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