Gold News

Gold Price Gains for 5th Week vs. Dollar, "Buoyed by Liquidity" as ECB "Bombshell Distracts from Debt Crisis"

The Gold Price eased back for Dollar investors on Friday in London, but recovered one third of yesterday's sharp sell-off – and was heading higher for the fifth weekly gain in a row – as official data said US unemployment retreated to 8.9% last month.

Overall, Non-Farm Payrolls rose at their strongest pace since June, just beating analyst forecasts.

Falling government-bond prices nudged their yields higher, but European stock markets stalled after Thursday's strong rally.

The Gold Price in Euros slipped further, dropping to a two-week low as the single currency rose peaked shy of $1.40 – a four-month high to the Dollar.

"The ECB dropped a bombshell yesterday," says Standard Bank's currency strategist Steven Barrow.

Flexing its "anti-inflation muscle" by threatening to raise rates next month "should ensure a stronger Euro for now," writes Barrow, "precisely because [the ECB] deflect the market's gaze from the debilitating debt crisis in the Eurozone."

Trading at €32,640 per kilo Friday lunchtime in London, the Gold Price in Euros lost 2.3% from Tuesday's new 7-week high.

"Trichet’s hawkish remarks raised fears of dwindling global liquidity," says Barrow's Standard Bank colleague James Zhang in a separate note.

"[But] we believe that these fears are unwarranted, and forecast that global liquidity will continue to grow this year...sufficient to provide support to precious metals, especially gold."

Over in the US – where "the Fed is certainly not going to hike rates anytime soon" says Standard Bank – "Yields may have to go higher, maybe even much higher to attract buying interest" in government bonds when the Federal Reserve's current purchase program expires on 30th June, says bond-fund giant Pimco's founder and CEO Bill Gross.

"Bond yields and stock prices are resting on an artificial foundation of QEII credit."

US vice-president Joe Biden opened urgent budget talks with Republican opponents on Thursday by offering $6.5 billion in cuts.

2011's deficit of spending over revenues is currently set to reach $1.65 trillion.

Debt-interest repayments would double to 30% of tax revenues by 2020 if US government-bond yields rose back to their historic average of 5.8% per year, reckons Société Générale strategist Dylan Grice in a new report.

"Before lending to the US government for 3.5% over ten years," says Grice, "bear in mind that when it comes to a real inflation fight, not one of the Fed economists you're betting on has ever been in one."

Back in Friday's precious metals action meantime, Silver Bullion held above $34.40 per ounce – a new 31-year high when broken on Tuesday, but some 1.8% below Wednesday's US Dollar peak above $35.

"Buying something overbought and chasing it is rarely a good strategy," says Charlie Morris, head of absolute return strategies at HSBC Global Asset Management in London, speaking to Reuters, "[and] I think we've missed silver.

"Not to say I think it's coming down, but it's a racy little number, it's a speedboat...It's not a trade you can walk away from."

Looking at the London wholesale market, "If silver lease rates remain high [rewarding owners who lend out their metal], then ETF and physical investors...will continue to be incentivised to relinquish their holdings, either lending the metal or moving into futures or similar paper-based products instead," says commodities strategist Nic Brown at French bank, and London bullion dealer, Natixis.

With New York contracts still trading cheaper for future than near-term delivery, "It's no real surprise that in the presence of this substantial backwardation, you've got people who prefer to own silver in futures rather than in its physical form," Brown told Reuters on Wednesday.

"But [the premium for immediate supplies] does continually beg the question of where is all this silver going? Either way, the market is telling you there is not enough [ Silver Bullion ] out there."

Many new uses for silver are highlighted by industry-body the Silver Institute highlights in its latest newsletter, from heat-retaining clothing for cold weather to replacing chemical dyes in wool and – when alloyed with rhodium – replacing palladium in "catalytic converters in cars, fuel cells production, medical instruments, and consumer electronic items such as flatscreen TVs, computers and mobile phones."

Silver filigree and jewelry production in Jaipur, India is suffering, however, reports CNTV, as the Silver Price has risen from 35,000 to 50,000 Rupees per kilo.

"With this hike, our trade has declined," says one Jaipur trader supplying the estimated 10,000 local silver workers.

"There was a shortage of raw silver for the craftsmen...We are paying heavily as the rates have gone up."

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Adrian Ash

Adrian Ash, BullionVault Gold News

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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