Gold News

Physical Demand to Buy Gold "Set to Return" After Chinese New Year, Silver Futures Market Points to "Heavy Physical Buying"

Prices to Buy Gold and physical silver were little changed on Monday morning against the world's major currencies, holding steady as global stock markets rose.

Crude oil and base metals also held firm, but major-economy government bond prices fell, pushing 10-year UK gilt yields up to  a 9-month high ahead of this week's Bank of England decision on interest rates.

The Bank of England last changed its key lending rate in March 2009, cutting Bank Rate to a record low of 0.5%.

Prices to Buy Gold have since risen by more than a quarter against the Pound Sterling, gaining 17% in real, inflation-adjusted terms.

Cash held on deposit at High Street UK banks has lost 6.5% of its real purchasing power.

"Gold is going quiet," reckons Pete Sorrentino at the $13.8 billion Huntington Asset Advisors fund group in Cincinnati, Ohio, speaking to Bloomberg.

"It's good and healthy and characteristic of gold's stair-step rally."

"[Gold] ought to be supported by safe-haven buying in regards to the tensions in the Middle East," says MKS Finance in Geneva, "while the high oil prices will surely be lending a hand" to Gold Investment demand.

The central bank in India – the world's No.1 consumer market for Buying Gold – today warned that continued unrest in Egypt threatens to send oil prices higher still from the current two-year highs.

"Also, we expect physical demand to come back from the Far East soon," says MKS, "when [the Chinese New Year] holidays will be over."

Hong Kong dealers returned to work on Monday, but with mainland China not back until Wednesday, trade was "very slow" said one, with Gold Prices on the electronic Globex platform starting the week $5 per ounce below last Friday's New York close of $1347.60.

"A two-and-a-half-year trend line support comes in...near $1295," says Scotia Mocatta's latest technical analysis.

"This $1300 area also represents the 50% pullback of our last up leg from $1158 [in July 2010] to $1430 [in Dec.]"

New data, released after Friday's close in New York, show the total amount of open interest in US Gold Futures and options shrinking last week at the fastest pace since at least 2005, down by 19% to a 10-month low.

Speculative, non-industry players cut their "net long" position of bullish minus bearish bets by 1% to the equivalent of 668 tonnes – the lowest level since July 2009.

Over in Comex silver futures – where open interest remained flat in the week ending last Tuesday – the price of current-month metal has risen above future-month contracts. This rare situation, known as "backwardation", means near-term delivery is priced more richly than the storage and interest-rate costs involved in delaying settlement – costs which normally keep silver (like Gold Prices) in "contango".

"In just one month and one week," notes Gene Arensberg in his GotGoldReport – "we have gone from the highest entire-spread contango in 26 months to essentially a zero-contango, backwardated market for silver.

"That speaks of extraordinary demand on the front end of the futures strip, and confirms heavy physical demand we believe."

Physical delivery times for wholesale Silver Bars in London – heart of the world's physical bullion markets – have improved. But major dealers continue to offer three-day settlement or longer, compared with the more normal two-day terms.

"A global liquidity super-cycle continues to overshadow the world economy," writes Steve Barrow, chief currency strategist at Standard Bank.

"Excessive liquidity has already led to asset price inflation...But rather than inflate house prices and other assets, as it did before 2008...it's commodity prices – and hence goods inflation – that are [now] taking much of the strain."

Noting the oil-price spike of mid-2008, "the credit crunch and deep recessions soon put paid to this pressure," says Barrow. "Our concern is that there's no such brake now."

Buy Gold and physical Silver Bullion at live "spot" market prices using the secure, low-cost BullionVault service online...

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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