Gold News

Fall in Gold & Silver Price Meets "Strong Momentum" in Asian Buying as Germany Votes "Too Little, Too Late" to Support Greece

Gold and Silver Prices gave back an early rally yet again in London trade Thursday lunchtime, trading at $1615 and $30.15 per ounce as Eurozone stock markets rose after the German parliament voted overwhelmingly in favor of extra financial support for Greece and other weaker member states.

The Euro re-touched Wednesday's highs above $1.37 on the currency market, while both German and Greek government bond prices rose, offering new buyers annual yields of 1.99% and 22.88% respectively.

Commodity markets were mixed, meantime, with industrial metals slipping as European Brent crude oil rose over 1% to $105 per barrel.

"The Double Top formation in gold remain our main technical focus," says the latest chart analysis from bullion-bank Scotia Mocatta.

"Only a close back above $1704 would remove the bearish outlook," it reckons, citing a "measured move objective" off this summer's peaks above $1900 per ounce down at $1488 per ounce.

The 8% and 17% drop in US Dollar gold and Silver Prices of the last week continues to jar, however, with the surge in physical investment demand reported by retail bar-and-coin dealers in both Europe and North America, as well as with extended delivery times in London's wholesale bullion markets.

"The blockage is logistical," said a senior precious-metals trader in London to BullionVault this morning, pointing to strong shipping demand from Swiss refineries wanting 400-oz London Gold Bars to convert into kilo-bars for European and especially Asian buyers.

Advanced bookings for silver shipments to China ahead of the New Year are also rising, he said.

"Current [gold] buying momentum is much stronger than the respective comparable period in 2009 and 2010," agrees today's note from Standard Bank's commodities team, "matching levels last seen in August 2010 and February 2011."

This surge in demand "is broad-based throughout Asia," says Standard, and "particularly strong" from India – where next month's Diwali festival is traditionally associated with strong gold jewelry demand – while sales of gold scrap from existing owners "have been sporadic rather than consistent."

On the US Gold Futures market, in contrast – where derivative contracts are typically settled in cash rather than metal – "We expect [this week] will show another and sharper decline in net speculative [demand]," says the latest Precious Metals Weekly from the VM Group for ABN Amro.

The falling Silver Price saw a 10% drop in speculators' "net long" position (of bullish minus bearish bets) even before last week's sell-off, according to VM's data, while as a proportion of all Comex Gold Futures contracts, the "net long" held by non-industry players fell from 40% at the start of August to barely 26% last week.

Yesterday saw the gross tonnage held to back shares in the SPDR Gold Trust – the world's largest Gold ETF – end unchanged at 1242 tonnes, down 0.8% from a week ago and 6% below its peak of June 2010. By value, however, the SPDR Gold Trust's holdings have swelled by more than 22% since then to reach some $64.5 billion today.

"The German parliament is voting for too little, too late," said Fredrik Erixon of the European Centre for International Political Economy in Brussels today, as the vote in Berlin saw strong parliamentary approval for an extra €88 billion in German support – some $118bn – for the European Financial Stability Fund.

Germany will now guarantee up to €211bn ($287bn) in so-called "bail out" loans to weaker member states. Some 40% of respondents to Bloomberg News' latest quarterly survey see at least one member state quitting the 17-nation currency bloc in the next year, and more than 1-in-3 respondents foresee a global recession sparked by the Eurozone's debt crisis.

"You suddenly have a crisis of confidence and trust that's impacting markets and could hurt economies," says one respondent, chief investment officer at Halkin Investments in London, Jean-Yves Chereau.

"Politicians need to move ahead pretty quickly."

Lack of political leadership is a key factor driving Gold Investment, said HSBC precious metals analyst James Steel last week at the London Bullion Market Association's conference in Montreal.

Gold's 10-year rise to date "shows that the political and financial systems the world lives by aren't working," agreed another LBMA Conference speaker, John Fallon of Peer Capital Management.

"Markets won't wait, they need a resolution now – within the next couple of weeks or months," says Barry Eichengreen, professor of economics and political science at the University of California at Berkeley, interviewed in the Washington Post.

"But [Europe's] structural reforms will require several years to complete."

Urging centralized banking control in Europe ahead of fiscal union – because "this is first and foremost a banking crisis" – currency-historian Eichengreen warns that "the costs of allowing or forcing a member state to exit the Euro area would be very, very high.

"If you think a Greek exit would be chaotic, the implications for the rest of the area would be chaos squared."

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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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