Gold News

Gold & Silver Fall from Dollar Records as "Poor Risk-Reward" and "Demand Destruction" Spark Commodities Drop

Wholesale Gold Bars slipped to a 3-session low in London trade on Tuesday, finally bouncing higher from $1455 per ounce – some 1.5% below yesterday's new Dollar high – as world stock markets fell and major-economy government bonds rose.

Commodity prices fell sharply after the International Energy Agency said crude oil at "$100-plus...will prove incompatible with...economic recovery."

Weaker than expected UK inflation data today followed the International Monetary Fund's newly downgraded global growth forecasts.

"Not only are there nascent signs of demand destruction...but also record speculative length in the oil market," says Goldman Sachs' closely-followed commodities strategist Jeffrey Currie in a note, advising the investment bank's clients to take profits on his recommendations in crude oil, copper, cotton, soyabean and platinum.

"The near term risk-reward no longer favours being long."

The world's largest commodities trader, Glencore International, is planning to raise $11 billion next month by floating its stock in London and Hong Kong, according to a Bloomberg report.

Silver Bullion today bounced from an overnight dip to $40 per ounce, trading 3.5% below yesterday's new 31-year highs as the start of New York dealing drew near.

"Near term Gold Prices are likely to be volatile, following each scrap of news flow," says the latest Metals Monthly from London consultancy the VM Group for ABN Amro clients.

"Any positive data from the US and hints of rate hikes [would] create headwinds. [But] the debt-financing needs of the US government (which are projected at $1.7 trillion this year) could again hinder any such moves, specifically as the Treasury has been borrowing at the short end of the curve, where rates are practically at zero."

More immediately, "A lowered outlook for growth has led many to conclude that inflation fears are unwarranted, thereby reducing demand for precious metals as an inflation hedge," notes Marc Ground at Standard Bank today.

But recent comments by Federal Reserve vice-chairman Janet Yellen – stating that strong food and fuel inflation "is temporary" and does not require a US rate hike – "ease concerns over a reduction in global liquidity [and] are supportive of precious metals, especially gold."

Here in the UK, the odds of a rate-hike in May sank from 80% to barely 20% on the futures market, says thew Evening Standard, after official data showed the pace of inflation slipping to 4.0% in March – still twice the Bank of England's mandated target, but below Feb.'s two-year peak.

Libyan rebels rejected any cease-fire talks until four-decade dictator Colonel Gaddafi steps aside.

The Pound fell to its weakest level in a week beneath $1.6250. The Gold Price in Sterling re-touched £900 per ounce, near last week's new 2011 highs.

The Euro meantime rose towards new 15-month highs vs. the Dollar as IMF and Eurozone officials met in Lisbon to discuss Portugal's proposed €80 billion bail out.

That knocked the price of wholesale Gold Bars for Eurozone investors down to a 1-week low beneath €32,500 per kilo.

"We must make good use of various pricing and quantitative tools, including...interest rates and exchange rates, to manage monetary factors in inflation," said Chinese prime minister Wen Jiabao at the weekend – the first time he's referred to foreign exchange rates as a tool for controlling inflation according to the China Daily's report on Tuesday.

The wholesale price of Gold Bars for Chinese buyers today slipped 0.6% from last week's new record highs above CNY308 per gram – higher by more than one fifth from this time in April 2010.

"The macro economic trends from emerging markets are positive for both gold and silver," says HSBC bank's senior metals analyst James Steel, noting how the economies of the world's strongest precious metals consumers "are growing at three times the rate of the established industrialized world."

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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.

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