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.