Gold News

Gold & Silver Prices Jump on "Short Squeeze" as Dollar Slides, "Bout of Physical Tightness" Hits London Bullion Market

GOLD and silver prices leapt in late London trade Friday, erasing earlier losses in what traders called a "short squeeze" to stand unchanged on the week as crude oil also bounced from 4-year lows.
 
After new US data put consumer confidence at the best level in 7 years, the Dollar suddenly fell hard on the currency market, dropping 1 cent against the Euro after trading near last week's 2-year highs.
 
Silver prices leapt 4.3% over the next two hours, touching a 7-session high at $15.94 per ounce.
 
Gold meantime gained 2.2% to recover $1175 after earlier sliding below $1150, a new 4.5-year low when first hit last week.
 
Betting against gold and silver prices has this month reached multi-year records on the latest data from US regulator the CFTC.
 
Data compiled by Reuters this morning showed open interest in US gold options was heaviest in "put" contracts – set to profit if gold falls – at target prices of $1100-1200 for both December and January.
 
"The gold price has increasingly become a function of the strength of the US Dollar in recent weeks," says a note from the commodity analysts at Standard Bank, saying that gold is "acting as a pseudo-currency."
 
"Precious metals," says Sean Corrigan at Diapason Commodities in Switzerland, "are only currently finding support from a bout of physical tightness in gold," as shown by a rising cost to borrow gold through London's wholesale market.
 
The annualized interest rate on bullion demanded by would-be gold lenders for 1-month swaps has risen since the start of November to 0.27%, steadily reaching the highest level since dramatic spikes to 0.5% and 4% in 2001 and 1999, caused by a rush to cover short positions taken by bearish traders.
 
"So far," says Bernard Dahdah at French investment and bullion bank Natixis, "rises in lease rates have reflected the difficulty of transforming [large] Western-held bullion bars to kilo bars [for Asian investors].
 
"But at some point, this may become more a question of the absolute volumes of gold still held in Western vaults."
 
With London the centre of world bullion dealing, net gold exports from the UK have now totalled 1,680 tonnes since the start of 2013 according to BullionVault analysis.
 
That equals more than 60% of total net imports – primarily held for investors in London's specialist vaults – over the previous five years.
 
Now the world's largest importer and mining producer, China currently has no "bullion banking" market, and the bulk of metal in private hands is held by consumers as jewelry or investors as kilobars.
 
Shanghai officials told the Reuters newswire last month they would like to enable miner hedging as well as speculative trading in physical gold through the launch of forwards and options contracts.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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