Gold News

Gold Investment Buoyed by Mid-East Turmoil, Cash-Rich Indian Farmers and "Toxic Global Liquidity"

The price of large Gold Investment bars rose back towards Friday's 2011 highs Monday lunchtime in London, hitting $1415 per ounce as the Dollar fell and crude oil hit near two-year highs above $112 per barrel.

Silver Prices meantime held flat near last week's finish of $33.44 per ounce.

US Treasury bonds rose, nudging the yield offered by 10-year debt down to 1-month low of 3.41%, as the Dollar fell towards 4-month lows to the Euro.

Eurozone stock markets rose but German Bund prices slipped – nudging interest rates higher – despite news that Eurozone inflation slowed to 2.3% in Jan.
 
The Gold Price in Euros slipped to €32,750 per kilo, trading 1.8% below last Tuesday's 6-week high.

"Political turmoil in Libya continued to support gold and silver" in Asian trading, says a Hong Kong dealer in a note.

"Amid ongoing unrest in North Africa and the Middle East, it is still quite astonishing that the price of gold has not profited more," reckons Commerzbank analyst Carsten Fritsch.

After US Secretary of State Hillary Clinton offered aid to Libya's opposition, the French government today said it is flying two plane-loads of medical equipment and staff to the east of the country.

French foreign minister Michele Alliot-Marie quit overnight amid claims that she accepted holidays and gifts from the former regime in Tunisia.

Two people were meantime reported dead in the Gulf state of Oman after troops fired rubber bullets at anti-government protesters in the industrial city of Sohar.

China's prime minister Wen Jiabao today vowed to cap inflation and curb corruption as "hundreds of police" were reported to be arresting protestors and foreign journalists attending rallies in central Beijing and Shanghai.

"Oil prices have soared but currencies have not moved much," notes Standard Bank's chief currency strategist Steve Barrow.

That's because "Currencies [are] the driver – not something that's driven" by external events, he says.
 
"Specifically, a combination of Dollar weakness and fixed or semi-fixed currency regimes, especially in Asia, is a toxic mix that creates higher liquidity. The consequence of this...can be higher growth, stronger goods price inflation [or] higher asset prices."

"Emerging nations that have not historically backed their currencies by gold and therefore have not acquired enormous holdings of the metal are redressing the situation," says RBS metals analysty Daniel Major, quoted today by The Daily Telegraph.

"The trend is characterised in Russia, where purchases are scheduled to continue at 100 tonnes per annum, having purchased 135 tonnes last year."

With Beijing actively encouraging Chinese citizens to make a Gold Investment, says Shivom Seth at specialist news site MineWeb, many farmers in India's northern cotton belt of Maharashtra now have "a lot of cash on their hands [and] are moving towards Buying Gold in small quantities rather than investing in farm machinery."

India's agricultural output has risen to 5.7% of gross domestic product, MineWeb reports. An "innovative investment offering" developed and supported by the World Gold Council now "allows the purchase of Gold Bars and coins through a systematic investment plan (SIP) scheme...similar to a recurring deposit."

Back here in London, the value of daily Gold Trading settled through the biggest bullion banks rose more than 4% to hit the highest level since May 2010's Greek deficit crisis says latest data from the London Bullion Market Association.

"All gold and silver statistics rose in January," says the Association in its monthly comment, "with silver value reaching a new record level in spite of the first drop in monthly average prices since July 2010."

The ratio of gold to silver trading in London fell by value to 7.7 times, the lowest level since spring 2007, as the volume of Silver Investing jumped.

New York Gold Futures meantime saw speculative players raise their bets on a rising price for the third week running in the week-ending last Tuesday. New data released late Friday by the CFTC watchdog showed professional and private investors extending their "net long" position (of bullish minus bearish bets) to the greatest level since the start of January, up by nearly 8% to the equivalent of 830 tonnes.

On the other side of the trade, gold-industry players from the "Commercial" side of the market raised their bearish betting on Gold Futures, cutting their overall bullish ratio (of positive contracts as a proportion of their total directional bets) to an 11-week low of 31.5%.

That remains just above the Commercial players' 5-year average, however, now sitting at 30.7%.

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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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