Gold News

Gold & Silver Investment Merely "Routine Speculation" at Record-High Prices as US & Irish Debt Quality Openly Challenged

The Gold Price recovered an overnight dip below $1500 per ounce in London on Tuesday, trading less than 1% shy of yesterday's new all-time high at $1518 as European stock markets rose together with major government bonds and energy prices.

After Monday's "explosive" Asian trade and near-$4 price range per ounce, "Silver showed further weakness" according to one Hong Kong dealer, "stretching [his] expectation about how volatile it could be."

At today's London Fix – set at $45.48 per ounce – the price of Silver Investment bullion had only been higher on four days in history, three of them amid the Hunt Brothers' Corner of Jan. 1980, and the other being Thursday last week.

"Despite silver setting new nominal record highs in the past week, the Comex net long position [in silver futures contracts] is far from record levels," says the latest Precious Metals Weekly for ABN Amro from the VM Group in London, "implying that [London-centered] physical trade is driving the price."

Friday and Monday's Bank Holidays in the US and UK meant "markets had a chance to go wild on thin volumes," says one London dealer, but after surging to new record highs gold settled last night at $1510 per ounce – the first drop in 8 trading days, as Russell Browne at Scotia Mocatta notes.

Silver Prices saw a "long legged Doji" chart pattern, Browne adds, "warning of a possible reversal" by touching new highs intra-day but falling back to end the session unchanged.

"There is some good, old-fashioned...[and] routine speculation...in the few commodities that can be stored, like gold," writes Jeremy Grantham, co-founder and chief investment strategist of the $107 billion GMO asset manager, in his latest letter to clients.

"[But] I believe this is a small part of the total pressure on [raw material] prices, and the same goes for low interest rates. [Instead] we have gone through a profound paradigm shift in almost all commodities, caused by a permanent shift in the underlying fundamentals" as limited supply meets vastly increased demand from Asia's fast-emerging economies.

"Statistically," says Grantham, "most commodities are now so far away from their former downward trend that it makes it very probable that the old trend [of steadily falling input prices] has changed.

"[This is ] perhaps the most important economic event since the Industrial Revolution."

Monday saw shares in Barrick – the world's largest listed Gold Mining stock – lose 5% after it successfully bid 14 times last year's earnings at take-over target Equinox, a copper miner.

Asian investors also sold Chinese loser Minmetals, however, driving it 12% lower in Hong Kong, after it said "the price offered by Barrick is above our most optimistic assessment of value... [and] would, in our view, be value destructive for [our] shareholders."

Over in Venezuela, meantime, 20 armed robbers broke into, seized control of, but failed to steal any gold from the El Callao facilities of Russian Gold Mining firm Rusoro.

"They did get into the storage area but they were unable to open the armored security safes" before fleeing the scene, Rusoro's local security chief told Globovision TV.

In the credit markets, a new report from Deutsche Bank ranks the US government as the world's fourth riskiest sovereign borrower, behind Greece, Ireland and Portugal, and just ahead of Italy.

Here in London on Tuesday, UBS's City office asked the decisions committee of the International Swaps & Derivatives Association to say whether the Irish government's new Credit Institutions Act signals a "restructuring credit event" for Anglo Irish Bank.

The Act orders AIB to buy back certain "subordinated liabilities" from bondholders, potentially triggering bets against the bank's debt known as credit default swaps.

Yields offered to new buyers of Irish, Greek and Portuguese debt all rose to new post-Euro records on Tuesday morning, as prices continued to fall.

Buying Gold or physical Silver Bullion today...?

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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