Gold News

Gold & Silver Jump vs. All Currencies as Dollar Sinks on Record China Data

Gold and silver leapt together with oil prices, base metals and agricultural commodities at the start of Monday's trading, touching a 5-week high against the US Dollar at $1160 an ounce.

Government bonds also rose, pushing interest rates lower from last week's multi-month highs, as world stock markets rose 0.5% on the MSCI index.

The US Dollar index – measuring its exchange rate against a basket of other major currencies – fell 0.7% to its lowest level since Dec. 12th.

"Gold gapped $20 higher at the open in Asia on news of record import figures from China and a weaker US Dollar," notes one London dealer.

Beijing today reported 18% growth in Chinese exports and 56% growth in total imports for last month.

Consensus forecasts had been for 4% and 31% growth respectively. Crude oil deliveries to China – now the world's largest private gold consumer, and its No.1 Gold Mining producer – broke 5 million barrels per day for the first time.

Friday's US pay-roll data, in contrast, was headlined by 85,000 job losses for Dec. But the Labor Dept.'s survey of households in fact pointed to "an enormous" rise in unemployment of 589,000 notes hedge-fund manager and investment author John Mauldin of Millennium Wave.

"Those classified as not in the work force, due to the fact that they did not look for jobs, rose by 843,000."

The US Dollar sank at the start of Asian trade on Monday, losing over 1¢ per Euro and dropping towards four-week lows that unwound more than a quarter of Dec.'s sharp rally.

The price of Gold rose faster than the Dollar fell, however, briefly jumping above €800 an ounce for French, German and Italian citizens – a level breached only two days running early last month.

British investors now Ready to Buy  Gold saw the price hit £720 an ounce today, barely 2% below the all-time high of early Dec.

US investors saw the London Gold Fix hit a five-week high, some 5% below its all-time peak of Dec. 3rd.

"Gold Prices had become overbought [by early Dec.] and that condition has now been corrected," says the latest Precious Metals Monthly from Canada's Scotia Mocatta bullion bank.

"The longer term picture remains bullish and there is still considerable risk and uncertainty as to how the economic malaise will be sorted out.

"In addition, geopolitical issues have resurfaced," says the market maker, citing the attempted Christmas Day airliner bombing, the rising oil price, and political unrest as well as further nuclear tests in Iran.

Latest data from US regulator the Commodity Futures Trading Commission (CFTC) showed late Friday that total open interest in New York Gold Futures and options rose 3.2% last week to a three-week high, but remained more than a tenth below the record peak of late Nov.

Market positioning in the CFTC's Commitment of Traders report showed little change however for either commercial (industry) players, large speculators (hedge funds etc.) and non-reportable positions (i.e. smaller institutions and private investors).

Commercial players acting for gold miners, refiners and bullion wholesalers continued to hold 3 bearish bets for every 1 bullish contract.

The "net long" position held by speculative, non-commercial traders rose by the equivalent of 8 tonnes to 921 tonnes, still more than 10% below the record of late Oct.

New York's SPDR Gold Trust – the world's largest exchange-traded gold fund – reduced the volume of gold bullion needed to back its stock-market shares by almost 1% to three-week low of 1119.5 tonnes.

"We are expecting further strength in Gold Prices, driven not just by Dollar weakness but also by fear of inflation and fiscal dislocations, plus continuing asset diversification moves by central banks," says David Wilson of Société Générale – the highest price-forecaster for 2010 at $1388 in this year's survey by the London Bullion Market Association (LBMA).

The average forecast in 2009 was more than 10% below last year's out-turn at $880. Amongst the 28 bank analysts, traders and dealers surveyed last week, the consensus 2010 forecast puts this year's average Gold Price just shy of $1200.

"[For silver,] better economic data bodes well for industrial demand," says Scotia Mocatta today, "but overall the market will remain dependent on investors' interest."

Silver prices jumped 2.2% vs. the Dollar early Monday, and touched new 18-month highs vs. the Euro.

Priced in British Pounds Sterling, silver hit a near-30 year high above £11.64 an ounce.

The correlation of silver prices with industrial metals led by copper rose throughout the second-half of 2009.

Analysis prepared by the GFMS consultancy for Washington's non-profit Silver Institute in November said that a sharp drop in industrial and photographic use during 2009 would likely be offset by a near-tripling in coin production and investment-bar hoarding.

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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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