Gold News

Inflation & Oil Risks "Driving People to Buy Gold" as Chinese Demand Jumps, Global Silver Investment Swells 2.5% Week-on-Week

Prices for Dollar investors to Buy Gold crept higher to reach a new all-time record Wednesday lunchtime in London, as crude oil rose further above $100 per barrel and world stock markets fell for the eighth time in nine sessions.

Western governments backed away from intervening in Libya's civil war, while Colonel Gaddafi vowed to "fight until the last man and woman" as loyalist troops moved into rebel-held towns in the east.

Silver Investment bullion broke new 31-year highs just shy of $35 per ounce.

Saudi Arabia's stock market sank again, taking this week's losses to 15.5%.

"Stability in Opec's largest oil exporter seems to be more bought than fundamentally established," says the Vienna-based JBC Energy consultancy, adding that "the recent unrest in [neighboring] Bahrain is therefore of particular importance...as the small country is surrounded by the vast majority of Saudi oil production."

"The more the market becomes concerned about inflation or concerns about unrest in Africa, more and more people will look to Buy Gold," reckons UBS global commodities strategist Peter Hickson, claiming that Gold Bullion sales to China topped 200 tonnes in the first two months of this year.

China's total private purchases in 2010 reached a record 580 tonnes, according to London's GFMS consultancy.

"Chinese interest is huge," agrees Bank of Nova Scotia's head of precious metals in Hong Kong, Peter Tse, saying that "Demand for physical gold and imports increased substantially" in the run-up to last month's Chinese New Year celebrations – a traditional season for gift-giving and 'auspicious' investment.

On the official side, "Some have argued that [Beijing] should buy oil, Buy Gold, buy iron ore, or even buy into companies and land," said Yi Gang, head of the $2.85 trillion State Administration of Foreign Exchange (SAFE), in a speech at Peking University today.

"[But] if we..buy commodities, we will immediately push up prices," said Yi – repeating comments he made in March 2010. "These markets, compared to the size of our foreign exchange reserves, are too small."

To cap the Yuan's exchange-rate with the Dollar, the People's Bank of China bought over $76 billion-worth of foreign exchange from commercial banks in Jan., new data showed Wednesday – a 24% jump from Dec., according to Reuters.

New data from the 17-nation Eurozone meantime showed industrial input-price inflation jumping to its highest level since Dec. 2008 at 6.1% in Jan.

Across the 27-member European Union, industrial input prices rose 6.5% year-on-year, unwinding the last of the near-10% slump from mid-2008's record highs amid the global banking crisis.

"We remain bullish on gold and silver as we remain in a loose monetary policy environment," says MKS Finance in Geneva's daily note, "[but] we wouldn’t rule out a small correction due to the longs that must have accumulated in the market."

"The total net long position" of speculative players in US Gold Futures "is at its highest since the week ending 4 January 2011," says the latest Precious Metals Weekly from London's VM consultancy.

A continued drop in physically-backed trust fund allocations, however – plus another fall in Tokyo futures'  positions – capped last week's total rise in exchange-traded Gold Investment products to 1.4% on VM's data.

Silver Investment leapt 2.5% in contrast, led by ETF demand even as US futures' positions were cut back.

"The Gold/Silver Ratio [of per-ounce prices] is approaching the 1998 low on its weekly chart," says Mitsui's dealing desk in London. So "it's likely there was some buying of the ratio [on Tuesday]...That could explain gold's rare outperformance of the grey metal."

Buying Silver or gold today...?

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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