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Gold Prices Hit New London High, Silver Drops 10.5% Ahead of Comex Margin Hike, "Frenzy" of Festive Indian Gold Buying

Gold prices hit new all-time Dollar highs at the AM London Fix on Tuesday, but silver traded near a two-week low as world stock markets slipped and commodity prices fell hard.

The US Dollar extended Monday's "post-Bin Laden" rally, helping crude oil lose well over 1%.

The interest rate offered to investors by 12-month US Treasury bills fell to new record lows as debt prices rose.

"Bin Laden death saps 'safe haven' appeal from precious metals," claimed a headline in the Toronto Globe & Mail on Monday.

"With many [Western] markets closed yesterday...the lack of liquidity exacerbated profit-taking [and] Gold Prices saw the biggest fall in seven weeks," says Marc Ground at Standard Bank here in London.

But "The drop triggered a frenzy of gold buying in India," says Shivom Seth, writing for MineWeb, as "the world's largest consumer of the precious metal is set to celebrate Akshaya Tritiya on May 6th."

One of the Hindu Vedic calendar's holiest days, Akshaya Tritiya is widely celebrated across southern India, where "Buying small pieces of gold or believed to bring success and wealth."

Indian investors "were [also] betting on growing demand for the yellow metal," MineWeb quotes one Mumbai analyst, Omkar Agnihotri.

Gold-up-silver-down is a rare event at the London Fix, occuring on fewer than 14% of all trading days since 1968 and with two consecutive days happening only 125 times in the last 43 years.

Three consecutive days of rising-gold-falling-silver has happened only once, in May 2003.

From last Thursday's London Fixes, however – the final wholesale "benchmarking" before the UK's four-day Bank Holiday weekend – the price of gold today rose 0.7%, adding a little over $10 per ounce to a new record high of $1546.60.

Silver, in contrast, stood 10.5% lower on Tuesday morning, down more than $5 per ounce to a two-week low of $43.61, ahead of the sharply higher margin payments required of leveraged players by the US Comex exchange from today.

Raised for the third time in 1 week to $16,200, the margin requirement on 5,000-ounce silver futures has almost quadrupled from this time a year ago.
"The underlying facts supporting gold are still intact," says Philip Futures analyst Ong Yi Ling in Singapore, "such as the ultra-loose monetary policy of the US Federal Reserve."

"The normal negative correlation of gold vs. the Dollar is back...helping this overall firmer trend," notes Phil Smith in Beijing for Reuters Technical.

"Interesting to see how turnover [in Gold Futures ] is coming down...A rising market with falling volume is generally not a good signal."

"During the last Federal shutdown, between Nov '95 and Jan '96," notes the commodities team at French investment bank and London bullion dealer Natixis – just as the US Treasury the Treasury said its agreed debt ceiling won't be reached until Aug. 3rd – "the price of gold rallied 8%.

"With the Dollar's effective exchange rate currently standing at its weakest level since at least 1990 amid concerns over US monetary and fiscal conditions, it is no surprise that Gold Prices are pushing up to new highs."

Speaking to the European parliament in Brussels on Monday, "The economic consequences of high-level indebtedness now would become more severe if rates were to rise," said UK central bank chief Mervyn King.

"It is the main reason why interest rates are so low."

Monday's spike in wholesale Gold Prices at the start of Asian trade saw the metal touch new record highs for US, British and Canadian investors, plus a new 2011 high for both Eurozone and Swiss investors looking to Buy Gold.

Silver fell hard at the very same moment, however, losing almost 9% of its Dollar-price inside an hour.

An early rise in Far Eastern equities on Tuesday faded as the Reserve Bank of India today hiked its key interest rate. Three-in-every-4 stocks traded in Mumbai closed the day lower.

European stock markets also slipped as factory input-price inflation showed a surprise rise in the 17-nation Eurozone.

Activity in the UK's manufacturing sector fell hard in April, new data said, dropping to the worst level since Sept.

Buying Gold or physical Silver Investment bullion today...?

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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