Gold News

Gold & Silver Drop Again, "Markets Take No Chances" on Falling Stocks, Weak Growth & Banking Reform

Gold dropped against all currencies bar the Euro early in London on Tuesday, touching the lowest level since Friday's 4-week trough at US$1083 an ounce as the Japanese Yen and US Dollar rose, and world stock markets fell yet again.

Crude oil dropped further below $75 per barrel, and government bonds rose worldwide, after the Bank of Japan left the key rate in the world's second-largest economy at 0.1% for the 13th month running.

The UK reported an end to its longest recession since the 1930s, but thanks only to economic growth of just 0.1% during the last 3 months of '09.

"Gold and silver have erased their year-to-date gains," says a note from Walter de Wet at Standard Bank, "while platinum and palladium are still up 4.5% and 7.1% respectively."

Silver prices today fell for the fourth time in 5 sessions, dropping over 12% from last week's high to trade at the lowest level since late October at $16.58 an ounce.

The net bullish position held by speculative traders in New York gold derivatives  last week fell 22 tonnes to 777 tonnes, notes Standard Bank's de Wet, falling as a percentage of all open contracts to 33% from 35% a week earlier.

That ratio hit all-time record peaks above 42% in late Sept. '09.

Overall last week, global speculation in Gold Futures, options and exchange-traded trust funds worldwide eased back by 0.5%, says the latest analysis from London's VM Group, published in its Precious Metals Weekly for Fortis Nederland Bank.

Speculative buying in Japan's Tocom gold market "bucked the trend," the consultancy adds, but "since our cut off date [of last Tuesday] it has also fallen back...suggesting investors there may be as nervous as elsewhere about the sustainability of the Gold Price rally."

Tokyo's 12-month Gold Futures today slipped a further 0.3% in price, ending the session just above a 12-week low at ¥3163 per gram.

Tokyo's Nikkei share index meantime fell for the fourth session running, closing a full 6.0% below last week's 15-month high.

China's Shanghai stock market had earlier dropped 2.4% on news that domestic banks had been ordered to further increase the proportion of depositors' money kept back in reserve.

"It was later clarified that this was simply an implementation of an earlier decision and that no new banks had been affected," says Gareth Berry, a UBS analyst.

"Markets took no chances however."

Here in London today, the FTSE100 stock index dropped to its lowest level since mid-Dec., as did 10-year UK gilt yields, pushed down to 3.85% as investors switched from shares to bonds.

After Monday's auction of Greek sovereign debt met strong demand from investors thanks to its 6.0% annual coupon, Fitch Ratings notes that Eurozone governments need to raise €2.2 trillion from the bond market this year, a rise of 3.7% from 2009's record level.

Standard & Poor's today cut its "outlook rating" on Japan's government debt to "negative" from "stable", calling Tokyo the "world's largest net external creditor."

"Remember, if something is too big to fail it is too big to exist," says CLSA's Christopher Wood in his much-followed Fear & Greed letter to clients, warning that global banking reform is likely to mean "structurally lower returns on equity" for banking stockholders.

"That is something Joe Sixpack can understand even it remains a point hard to grasp for the sophisticates in New York and Washington and the rest of the Davos Crowd."

Technical analysis from one major dealers' team in London today pegs "major support" for Gold at $1070.

"From a technical point of view, we're in a tricky area," says another trader, speaking to Reuters. "There's support at $1075 an ounce."

MKS Finance in Geneva pegs nearby support for the Gold Price at $1080 and then $1065 an ounce.

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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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