Gold News

Gold & Silver Price Falls vs. Resurgent Dollar as Futures Margins Raised Again, UK Inflation Rises, "Tail Risks" Warrant Defense

Spot Gold fell for the sixth sessionrunning vs. the Dollar in Asian and London trade on Tuesday, droppingto a near-two week low as the US currency rose and global stockmarkets fell.

The Gold Price in Euros, Sterling andJapanese Yen also slipped, but lost just 0.5% from last week'sfinishes.

Broad commodity indices lost more than1% as crude oil futures dropped back to $83.50 per barrel.

The Silver Price fell to $25.35 perounce, some 14% off last Tuesday's 30-year record high, after theChicago Mercantile Exchange raised margin requirements on leveragedsilver traders for the second time in a week.

The CME also raised Gold Futuresmargins by 5.9%, effective close-of-play today.

“Gold had accelerated away from theuptrend line, pulling back again from an overboughtcondition,” writes Phil Smith at Reuters Technical in Beijingtoday.

“The usual negative correlation withthe Dollar is back in place, and [long-term] the Dollar is movingsteadily to the downside.”

“While we still think that theoverall environment, characterized by quantitative easing andinflationconcerns, remains bullish for the precious metals, wewouldn’t rule out further long liquidation in the immediateterm,”says Swiss refinery group MKS's finance division, “with theDollar's strength creating a barrier to further gains for the timebeing.”

Latest data from US regulator theCommodity Futures Trading Commission, delayed until last night byVeteran's Day, showed both speculative and commercial“industry-insider” traders bucking recent trends and reverting totype as the gold and Silver hit new record levels last Tuesday.

Speculative traders raised theirbullish bets, while commercial traders grew their net-bearishposition.

“At some unknown point, easy moneyturns into excess leverage, reduced deflation risk becomes inflationfear, fiscal stimulus becomes sovereign credit risk," saysJ.P.Morgan's asset-allocation group in a recent note, quoted by theWall Street Journal.

"We can't tell where this turncomes, but history warns us it tends to happen suddenly andviolently. As investors, you can't always focus on tail risk, but itmakes sense to tilt portfolios toward them."

New data today showed US factory-gateprices falling unexpectedly in October from Sept., while CapacityUtilization was also weak and Industrial Production growth flat.

Over in the UK, new data showedconsumer price inflation rising to 3.2% annually in October, forcingBank of England governor Mervyn King to write an open letter to thegovernment, explaining why inflation is more than one percentagepoint above his official target once again.

Again, King blames January's VAT taxrise, plus global commodity and UK import prices. Again, he promisesto “stand ready to act” - with interest rates still at 0.5% for19 months running, the longest period of inaction since Bank Rate was“thrown in the bin” (as one academic historian put it) for 20years after the Great Depression at 2.0%.

Again, and despite warning thatinflation “is expected to remain above target for a year orso...indeed, [it] may rise further,” King cites “a margin ofspare capacity” which will bring inflation back below target “inthe medium term”.

Real interest rates for UK savers –after inflation – haven't been this negative since 1978, with the Gold Price in Sterling rising 163% since the Northern Rock banking run of three years ago.

US interest rates, accounting for CPIinflation, have now been sub-zero – meaning a real loss ofpurchasing power for savers – in 58 months since 2002. The 1970ssaw negative real rates in 61 months in total.

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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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