Gold News

Gold & Silver Prices Fall Hard from Record Highs as Stock Markets Rise, But "Short-Term Charts" & "Economic Fears" Bullish

Gold and Silver Prices both fell as London traders returned to work from the New Year shutdown on Tuesday, dropping 1.3% and 2.2% respectively from yesterday's highs as world stock markets caught up with Wall Street's strong gains.

The US Dollar whipped lower on the forex market, helping the Gold Price in Euros extend its drop to 1-week lows, down some 1.3% from Thursday's new all-time high of €34,586 per kilo.

UK investors wanting to Buy Gold today saw the price briefly drop through £900 per ounce, down 2.3% from yesterday's new record high.

"Short-term technicals remain in favor of further gains across the sector," reckons Stefan Graber in Singapore for Credit Suisse.

"Gold is aiming for the $1425 resistance level, while a decisive break above $31 would open the way for Silver Prices to test $32.50."

"The next major [Silver Price] target remains the 1980 high of $49.50," says Scotia Mocatta's latest technical note, forecasting further falls in the ratio of gold to Silver Prices.

Averaging 53 over the last four decades, the ratio of gold to Silver Prices hit a 13-year peak above 80 as silver plunged amid the financial crisis of late 2008.

Now the Gold/Silver Ratio is "closing in on our 2006 low of 44.08," reckons Scotia.

The US Mint says it sold nearly 1.7 million Silver Bullion coins on Monday, the first day of American Eagle 2011 sales – equal to almost 5% of last year's entire silver coin sales.

Full-year 2010 saw the Mint sell 1.3 million 1-ounce Gold Coins, down 14% on 2009. Monday's Gold Coin sales reached 8,500.

Gold Bullion held in trust by the world's largest exchange-traded gold fund – New York's GLD – meantime swelled 13% to 1280 tonnes in 2010, peaking at 1320 tonnes in June.

Speculators in US Gold Futures and options cut their bullish betting, however, reducing their "net long" position (of long minus short contracts, as a group) from 931 tonnes equivalent to 884 tonnes over the last 12 months.

Averaging the equivalent of 627 tonnes over the last 5 years, the net long speculative position in US gold derivatives peaked at 1021 tonnes in Oct. 2009.

"If the Dollar has any negative impact on gold, it's only short-term. The market is still on the positive side," says Heraeus refinery's Dick Poon in Hong Kong, speaking to Reuters.

"There are still worries about the economy in the Eurozone. For the long term, people would want to put money in commodities, metals." 

A survey of 78 professional economists – including 10 former Bank of England policymakers – today says a European debt crisis, high inflation and the negative effects of government cuts are the top 3 risks to the economy in 2011.

"The Fed’s gung-ho approach to quantitative easing, supplanted by the Administration’s tax-cutting zeal, stands in marked contrast to the Eurozone," says Steve Barrow, chief currency strategist at Standard Bank, in his 2011 outlook today.

"One side could be vindicated, while the other suffers – although there’s an even greater risk that both will be wrong."

New data from the Eurostat agency today said Eurozone price inflation rose to a two-year high of 2.2% annually in Dec. – just above the European Central Bank's 2.0% target.

Within the figures, both German and Spanish data "surprised" analysts says the FT's Alphaville blog.

Major government bond prices fell early Tuesday, led by a drop in UK gilts that nudged the yield offered to buyers of 10-year debt up to 3.48%.

London's FTSE100 share index meantime jumped 2.4% to catch up with strong gains in Europe and the US on Monday.

Silver miner Fresnillo led the jump, gaining almost 6% at the start of trade after King World News said that Mexican industrialist Carlos Slim, reputedly the world's richest man, is considering a takeover of the world's No.1 primary silver miner – a rumor first reported in the UK press last May.

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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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