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Gold & Silver Bullion Knocked Hard by Trichet's"Vigilant" ECB Rate-Hike Threat, Deutsche Repeats $2000 and $50 Targets for 2012

Gold and Silver Bullion prices fell sharply London lunchtime on Thursday, bouncing 1.5% and 2.3% below this week's record Dollar highs after European Central Bank president Jean-Claude Trichet said a Eurozone rate rise is "possible" next month.

The Gold Price in Euros dropped 0.9% in just 30 minutes, trading 2.5% below this week's 7-week high of €33,500 per kilo.

US crude oil extended the 1.1% drop to $101 per barrel seen after Venezuelan president Chavez offered to broker an international agreement to resolve Libya's escalating civil war.

Speaking in Frankfurt, ECB chief Trichet vowed "strong vigilance" on inflationary pressures for the first time since slashing interest rates to a record low amid the global financial crisis, and re-stated his "primary mandate to deliver price stability to 331 million citizens" of the 17-nation currency union.

"It is certainly not the right interpretation that this would be the start of a series rate rises," he added at the ECB's monthly press conference, made after the central bank voted to keep rates on hold at 1.0% for the 22nd month in a row.

The Gold Price in Sterling also fell, but lost only 1.1% as the Pound fell hard on further weakness in the UK's PMI index of  service-sector activity.

"Cable looks in need of support to me," says one London trader in a note, claiming to spot a sovereign-government player in the Pound/Dollar market.

"We still expect the Bank of England will not announce a hike of 25 basis points until late 2011," says the forex desk at Jyske Bank, forecasting "very much" disappointment for Sterling bulls and a 2011 low of $1.47 – a 10% drop from yesterday's new 14-month highs.

"[It] might appear...that Bank Rate needs to rise faster than implied by the market yield curve," said Bank of England policy-voter Charles Bean in a speech on Thursday.

"But the risk of inflation staying above the target into the medium term needs to be weighed against the downside risk to growth...Temporary deviations of inflation from the target are permissible..."

UK inflation has now out-run the Bank of England's official upper tolerance of 3.0% per year for 13 months running on the Consumer Price Index.

Like gold, meantime, Silver Bullion also repeated and extended Wednesday night's sharp drop, slipping 2.3% against the Dollar from Wednesday's new 31-year high above $35 per ounce.

"Further up are the 36.00/50 Point & Figure targets, the 61.8% Fibonacci extension of the 2010-11 rise, taken from the January low...and the next higher Point & Figure target at 38.50," says the latest technical chart analysis from Axel Rudolph  at Commerzbank.

Silver's "all-time high at 49.45...remains on the radar longer term. Last week’s low at 31.71 should now offer support, if retested at all that is."

Silver's industrial use is also supporting prices, according to a research note London market-maker Deutsche Bank's analysts.

"Global growth is anticipated to remain a priority for [governments and central banks] over the course of the next several years, given the obvious negative consequences that slow growth would have," they write, repeating their call for the Silver Price to average $50 per ounce in 2012.

"Key applications such as solar and electrical/electronics have impressive global growth profiles."

Deutsche's analysts see the Gold Price trading at $2000 next year.

Egypt's "Supreme Council of the Armed Forces" meantime announced on its Facebook page that it "decided to accept the resignation" of prime minister Ahmed Shafiq – appointed in the dying days of Mubarak regime, which came to power in a military coup in 1981 – and "appointed [former transport minister] Essam Sharaf to form the new government."

"Intensive negotiations" meantime continued in Libya – where Gaddafi loyalists took and then lost control of the Bregra oil terminal town on Weds – to free 3 Dutch marines captured while while trying to evacuate European consulate staff on Sunday.

Up to 90,000 people have now fled to Tunisia, the United Nations said, with many thousands more waiting to cross.

Buying Gold or physical Silver Bullion today...?

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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