Gold News

Gold Buying Hits "Big Numbers" as Eurozone GDP Shrinks; Silver "At Mercy of Gloomy Economy"

Spot Gold prices slipped 1.9% from a fresh 7-month high for US investors early in London on Friday as world stock markets rallied.

The Gold Price also retreated from new all-time highs for British and Euro buyers – hit just after the end of New York trade yesterday – at £671 and €744 respectively.

Crude oil held near two-month lows at $34 per barrel.

Treasury bonds gave back this week's gains as the MSCI index of world equity prices bounced from their near-4% drop.

"We have run up too fast and too high and we should see a correction [in Gold] down to the $920 an ounce level," reckons Bernard Sin at MKS Finance in Geneva, speaking today to Bloomberg.

But "Make no mistake," says today's note from metals dealer Mitsui, looking at mutual fund investing into Gold Exchange Traded Funds – "These are big numbers.

"The SPDR Gold ETF added another 1.14 million ounces Thursday. In complete contrast, India has reported no gold imports so far in February – hardly surprising with the Rupee price at an all time high.

"Given the spot market was capped at $950 whilst all this ETF buying was going through, it is clearly a strong technical resistance level. The support level is $930, and as soon as this investment flows slow down, expect this to be tested."

Also watching the Dollar-price only, a note from Barclays Capital on Thursday told clients that gold has "resumed its eight-year bull run", breaking through important resistance levels this week to target new highs at $1,180 an ounce.

For the predominantly industrial platinum-group metals however, "Weak global industrial production, slumping automotive demand and frail consumer markets will depress PGM in the medium to long term," says the latest Commodities Weekly from Walter de Wet's team at Standard Bank in London and Jo'berg.

"With the Gold:Silver Ratio on the increase again, silver could [also] decouple from gold and be at the mercy of gloomy economic conditions."

This week the gold:silver ratio rose above 70, jumping from last year's average of 58. But it remains less than half the record peak of the late 1930s – when one ounce of gold bought 153 ounces of silver.

Under the 19th century Gold Standard, bi-metallic currency systems using both gold and silver for coinage priced gold at an average of 16 times the value of silver.

Over on the currency markets Friday morning, the Euro resumed its downtrend vs. the Dollar – falling to $1.2850 – on news that GDP in the 16-nation Eurozone shrank at a record rate at the end of 2008, contracting by almost 5% annualized. The German economy shrank at its fastest pace since 1988.

The British Pound shot higher, meantime, regaining half of this week's 8¢ loss.

Thursday saw both the Pound and Dollar tumble after Moody's Investor Services said the triple-A credit ratings of both the US and Britain were "being tested" by the financial crisis.

"However, in our opinion, these countries display an adequate reaction capacity to rise to the challenge," added Pierre Cailleteau, Moody's chief international economist.

Refining its view, Moody's also said the Anglo-Saxon states look "resilient" as opposed to "resistant" – a category reserved for stronger sovereign borrowers including Germany, France and Canada.

Ireland and Spain both look "vulnerable".

"I think the only way the United States will not default physically on their debt is to inflate," said Dr.Marc Faber – private-client fund manager and publisher of the Gloom, Boom & Doom Report – to CNBC earlier this week, "and in the long run you will get much higher inflation rates.

"In the US we have a totally new school of economic thought," Faber went on, "and it's called the Zimbabwe School of Economics.

"If something goes wrong, print. If it doesn't get fixed, print more. If it then goes even worse, print more."

Admitting that the US is "not yet" suffering hyper-inflation, "I don't see the Federal Reserve raising interest rates to real levels [above inflation in the cost of living]," he added, "or raising short-term rates above the level of GDP growth."

This week alone the US Treasury planned to sell $187 billion worth of new government debt, most of it as shorter-term notes and bills.

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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