Spot Gold "Underpinned" by 3-Year Uptrend, Silver Jumps Above $30, as "Growth Replaces Inflation" as China's #1 Worry

Spot Gold prices touched a new 3-week high against the US Dollar in London on Tuesday morning, trading above $1638 per ounce as world stock markets rose with industrial commodities.

Silver Bullion leapt above $30 per ounce, gaining more than 4.5% from last week's close, as German government Bunds eased back and other Eurozone bond prices ticked higher, edging interest rates lower.

Ahead of Thursday's meeting of the European Central Bank – widely expected to cut interest rates across the 17-nation currency zone below 1.00% for the first time – the Euro currency crept up to its highest level since Friday lunchtime at $1.28, just 1¢ above Sunday night's 16-month low vs. the Dollar.

"Precious metals are benefiting from a broad-based buying across asset classes," says Marc Ground at Standard Bank.

"The 2008-11 uptrend line at $1532.62 underpins the Spot Gold weekly chart," says Axel Rudolph, technical analyst at Commerzbank.

Looking at Spot Gold in Euros, an "Impulsive move higher is being witnessed," Rudolph adds, saying that for Eurozone investors "it will take an unexpected reversal...for the current bullish momentum to be thwarted."

The Gold Price in Euros today touched a 1-month high above €41,000 per kilo.

Latest data from the International Monetary Market on Friday put the size of speculative bets that the Euro will weaken further "at an all time high" according to HSBC's Global Markets team today.

"We have seen good physical demand emerge below $1610 for two days in a row," said a Hong Kong Gold Bullion dealer in a note on Tuesday.

"There is some buying, but we haven't seen a substantial pickup in physical demand before the Lunar New Year," says Dick Poon, manager of refinery group Heraeus' Hong Kong operations, quoted by Reuters.

The Chinese New Year will fall on January 23rd, marking a week of national holidays now associated with heavy household demand for physical Gold Coins, jewelry and other products.

"People are worried about the Eurozone, and concerned if China can maintain its growth," says Poon.

German chancellor Angela Merkel will tonight follow Monday's meeting with French president Sarkozy by meeting Christine Lagarde, head of the International Monetary Fund, to push ahead with the 50% writedown on Greek government debt agreed at a summit last October.

Italian bond prices rose Tuesday morning, trimming interest rates on Rome's 10-year debt to 7.14%. That's still more than five percentage points higher than Berlin pays, however.

New data from China meantime showed the pace of import growth falling sharply from 22.1% year-on-year in November to 11.8% last month – a two-year low.

"Domestic demand is slowing down very quickly," says Zhang Zhiwei of Nomura in Hong Kong. "The first quarter is going to be very tough."

November saw China cut its banking reserve requirement – the amount of savers' deposits which must be kept back, rather than lent out – for the first time in three years.

"Growth has [now] replaced inflation as Beijing’s top policy concern," says Qu Hongbin, co-head of Asian economics research at HSBC, forecasting 3 cuts to China's banking reserve requirements by July.

"Gold shipments certainly haven't gone from nought to sixty like they did last year," said a senior logistics executive by telephone to BullionVault this morning.

"But there's still a tremendous amount of material going there," he went on, adding that Chinese gold imports leapt in September, and have remained at strong levels since.

"The worry is India. November's flow was dead, the worst since 2008."

The Reserve Bank of India today granted approval to four more banks for the import of Gold Bullion and other precious metals. That takes the total number of banks licensed to import gold and silver to India – the world's heaviest consumer market – up to 35.

"It's not because they foresee huge demand coming up," Reuters quotes a bullion dealer, noting that 2011 gold imports to India – which has no domestic mine supply – are estimated to have fallen by 9% from 2010's all-time record high.

"They are just trying to open up for more competition in the market and customers will have more choices."

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