Gold and Silver Prices failed to hold a rally in London trade on Wednesday, slipping back from a bounce on "decent" Asian demand after a rise in China's benchmark interest rates yesterday sparked what one analyst calls "a knee-jerk sell-off across the commodities."
US crude oil contracts crept back above $80 per barrel as the broad MSCI commodities index added more than 1%.
Losing 2.5¢ to the Dollar on Tuesday, the Euro rose back above $1.3850 this morning, pushing the Gold Price for French, German and Italian buyers down towards an 8-session low beneath €31,100 per kilo.
"Nervousness abounds," says UBS metals strategist Edel Tully.
But "Investors are still buying dips in the Gold Price," counters Walter de Wet at Standard Bank. "We expect this to continue for the next two weeks", until the US Federal Reserve announces its widely-expected round of quantitative easing.
"Very easy Chinese monetary conditions have been one of the primary drivers for global asset demand, including commodities," says a note from the currency analysts at RBC Capital Markets today.
The first rise in China's benchmark rates since late 2007, "This start to the rate-hiking cycle will tighten monetary conditions [and] be accompanied by ongoing gains in the Chinese Yuan."
Washington has long asked China to allow the Yuan to appreciate, because "The international monetary system today has become distorted," as Bank of England governor Mervyn King told an audience in the English Black Country last night.
"The major [trade] surplus and [trade] deficit countries are pursuing economic strategies that are in direct conflict."
"The end game...was always going to be monetary debasement, competitive devaluation and a trade war," writes SocGen's ever-bearish analyst Albert Edwards in a new report.
"As US unemployment begins to rise, do not be surprised when across-the-board tariffs are implemented if China does not revalue."
Beijing's move yesterday raised bank-deposit rates faster than borrowing rates, but it still leaves real returns sharply negative for China's cash savers.
CPI inflation was reported at 3.5% on the official measure in August. Local analysts expect to a reading of 3.6% annually for Sept.
One-year deposit rates were raised by 0.25% on Tuesday to 2.50%. Chinese savers have to tie-up their money for five years to get more than 4% interest.
Back in the precious metals market, meantime, Silver Prices today recovered half of their US Dollar losses by lunchtime in London, briefly trading above $23.90 per ounce after losing more than $1 on Tuesday – silver's fifth "dollar day" of the last 3 weeks.
"The price action is bearish," says a note from bullion bank Scotia Mocatta, but "due to the very strong price action last week, we do not see major selling enter the market until $22.94."
Looking ahead, "The timing of [China's] rate hike is somewhat suspicious," says a short from Japanese metal conglomerate Mitsui's London dealers, pointing to a slew of Chinese economic data – including GDP and last month's Consumer Price inflation – due out later today.
"We could see these numbers exceed expectations."
Here in London, meantime, UK government bonds rose sharply – bucking the trend in German and US debt – as Chancellor George Osborne told Parliament he would eliminate the structural deficit in Britain's state finances by 2015.
Some 490,000 public-sector jobs will be cut, with departmental budgets slashed by 19% on average over the next four years.
The Pound held below $1.4750, however, holding the Gold Price in Sterling just shy of £850 an ounce.
In Spain's Valencia region today, the treasurer of Villajoyosa announced "the impossibility" of paying the town council's €11.2 million in unpaid bills, since the municipality now holds funds of only €286,000.
Payments to all vendors are suspended, but council staff wages – as well as bank interest – will continue to be paid.
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