Gold News

Gold Price Holds Flat, "No Link" to Middle East Unrest as Beijing Advised to "Buy Gold on Dips"

The Gold Price in Dollars held flat for the week so far on Wednesday morning in London, trading at $1337 per ounce as silver ticked lower with the broad commodity markets but copper prices broke fresh all-time highs.

Clashes broke out in Cairo as protesters demanded President Mubarak leaves office now, not in Sept. as he's offered.

The Gold Bullion market's lackluster response during Egypt's unrest suggests "there is no direct link between geopolitical risk in the Middle East and the gold price," reckons one dealer in a note.

With China's equity markets closed for the Lunar New Year holidays, Japanese and other Asian equities rose sharply, but European shares held flat overall after new data showed Factory Gate prices in the Eurozone rising at a two-year record of 5.3% in Dec.

UK construction activity also rose ahead of expectations, as did new US jobs as measured by the private-sector ADP Payrolls report.

"The downside target of the head and shoulders top [in the Gold Price] remains at $1265," says Axel Rudolph in his latest technical analysis research for Commerzbank in Luxembourg, "which is right at the June 2010 high.

"Hence the whole region between the 2008-2011 uptrend line at $1296.37 and the $1227.20 November 2009 high could be revisited over the coming weeks before the Gold Price stabilizes."

Following January's 6% drop in the Gold Price, Chinese central-bank advisor Xia Bin yesterday repeated his call for the People's Bank to maintain its "buy-at-a-low" strategy and grow its gold reserves, according to the privately-owned free English daily paper, the Hong Kong Standard.

"Increasing gold reserves can increase the amount of solvency, which is critical for the internationalization of the Yuan," Xia said, adding that "the United States did not sell a single gram of gold, despite financial hardship in 2008."

A 6% drop in Gold Prices in early November saw an un-named official talk up the prospect of central-bank buying in a Chinese stock-market journal.

Over the last 30 months, private Chinese households have bought as much physical gold as the People's Bank officially reports all told.

"We must resolutely prevent [consumer] prices from rising too fast...and unswervingly do a good job of controlling the property market," Chinese premier Wen Jiabao said Wednesday morning, visiting a former revolutionary army base in the central province of Anhui ahead of the Lunar New Year holiday.

Shanghai recently imposed new "wealth taxes" on second-home owners, and banking reserve ratios have been raised 7 times in the last 12 months.

Slipping to 4.6% on official data in Dec., consumer-price inflation in the world's second-largest economy remained more than twice the rate of interest now paid on Chinese households' massive bank savings.

"The single most important variable for gold is what the monetary authorities do," said Dr Martin Murenbeeld, economist at South Africa's Dundee Wealth Economics, on MineWeb's weekly radio show  last night.

"What would put a damper on gold is if the authorities got ahead of inflation...if China jacked its interest rates up to 8% or 9%, and if India jacked its interest rates up by 10% or 12%."

Such a move is unlikely, however, says Murenbeeld, because the world's two most populous nations "are very concerned" that economic growth continues to provide enough new employment.

"During the [2009] recession, even China and India expanded their budget deficits very dramatically."

Ireland's government debt was downgraded on Wednesday for the second time in two months by the Standard & Poor's rating agency, which cited the rising risk in Irish bankin debt – caused in turn by "the uncertainties surrounding the size of Ireland's additional capital needs for its largely state-owned financial sector."

On the currency markets today, the Euro slipped half a cent to the Dollar but held above $1.38, capping the Gold Price for German and French investors at €31,150 per kilo.

The British Pound jumped, however, rising above $1.62 and coming close to the 2010 highs set in Nov.

That squashed the Gold Price in Sterling back down to last night's four-month lows at £823 per ounce.

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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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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