Gold News

Physical Gold & Silver Prices Whipped by Dollar Rally, US "Manipulation" Statement, and Chinese Call for "Huge Gold Reserve"

Physical Gold prices slipped back to last week's finish below $1330 an ounce in London on Wednesday, as the US Dollar rallied after a Wall Street Journal report citing "interviews with some officials" said the Federal Reserve will be more cautious-than-expected in next week's hotly-anticipated asset purchase program – also known as QEII.

Crude oil contracts fell for the first time since Friday. Emerging-Asia stock markets lost 0.8%.

"Despite [last week's] setback" in Gold Prices, says Wolfgang Wrzesniok-Rossbach in his Precious Metals Weekly for German refiner Heraeus, "a real change in trend is presently not foreseeable.

"A large dip would be just a fresh opportunity to enter the market again, as the generally positive environment [for Gold Investing] should hold for the time being. It will change one day, when global interest-rate policies change."

Buying only Treasury bonds, rather than commercial debt, the Fed will target 2- to 10-year maturities according to the WSJ, dripping new money into the bond market rather than unveiling its total package all at once.

"Imported inflation caused by out-of-control Dollar printing and skyrocketing commodity prices is hitting China hard," the People's Daily today quotes Chinese commerce minister Chen Deming, speaking at a trade fair in southern China.

The People's Bank of China today cut the Yuan's official exchange rate to a 1-month low, down 0.3% from Tuesday.

Last weekend's G20 meeting has "bought some time" before the US Congress will join the Senate in calling China a "currency manipulator", says a senior analyst quoted by Reuters today.

"Doubtlessly, if the Yuan is set to become an international currency like the Dollar or the Euro, China has to get a huge Gold reserve to support it," says Meng Qingfa, a researcher at the China Chamber of International Commerce, quoted by the International Business Daily – the official newspaper of Beijing's Ministry of Commerce.

"A reserve of 1,054 tonnes [of Gold Bullion] is far from being enough."

Buying Gold around $1300 an ounce, says Meng, the fast-growing Asian economy could match Washington's 8,000-tonne gold reserves by using 10% of its $2.65 trillion in foreign currency holdings.

Elsewhere on Wednesday, South Korea reported a sharp slowdown in its economic growth, while broad money-supplies across the 16-nation Eurozone slipped to 1.0% in Sept.

US mortgage applications showed a rally for last week, bouncing from early Oct.'s sharp decline.

The Euro fell to a 1-week low beneath $1.38, holding the Gold Price for French, German and Italian investors above €30,900 per kilo.

British investors wanting to Buy Gold today saw the wholesale-market price slip back below £840 an ounce – a record-high when crossed in May this year, now some 3.5% off the record price hit in late June.

In Dollar Gold Prices, "Only a weekly close above the $1400 level would change our currently medium-term toppish outlook," says Axel Rudolph in his latest Technical Outlook for Commerzbank, "this week at least."

Looking at the ratio of gold to Silver Prices – a measure of relative strength in the two precious metals' prices – the current reading of 55.92 "is only marginally above major support" says Rudolph, citing "the March-to-July 2008 consolidation zone and the 2006-2010 uptrend line [now] at 52.24.

"This we expect to stop the current tumble in the Gold/Silver Ratio, at least temporarily" – meaning a pause in silver's outperformance of Gold Prices.

Silver rose late Tuesday to a 1-week high at $24.25 per ounce – matching and extending gold's overnight action – following a statement from US regulator Bart Chilton that he wants the Commodity Futures Trading Commission to prosecute "repeated...fraudulent" but so far un-named "efforts to persuade and deviously control" Silver Prices.

"Silver option-related buying hit [electronic trading platform] Globex as soon as it opened this morning," says one Hong Kong dealer in a note.

But the Silver Price quickly fell back in Asian trade this morning, dropping 3.1% by the time London opened for business as selling "snowballed" despite a Wall Street Journal report that said CFTC lawyers have interviewed employees of J.P.Morgan – commonly cited by anti-manipulation lobbyists as holding a "disproportionately" large short position in silver futures after it acquired the stricken Bear Stearns investment bank in March 2008.

"Based on the breadcrumbs that Bart Chilton has given us," the Financial Times quotes UBS strategist Edel Tully – the only major-bank analyst to comment so far – "it's hard to see what impact [his statement] could have on the market.

"[Not] unless the CFTC says the manipulation is ongoing, which we don't see evidence of."

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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