Gold News

Spot Gold Rallies, Silver Extends 24-Year Record Plunge, as Weak ECB and Bank of England Rates "Favor Precious Metals"

Spot Gold prices briefly dipped beneath $1500 per ounce the first time in a week on Thursday morning in London, rallying to $1509 – and recovering faster vs. the Euro and Sterling – as the UK and Eurozone central banks held their interest rates unchanged, significantly below the rate of inflation.

The Euro dropped 1¢ to the Dollar, helping the Gold Price in Euros reverse one-third of this week's 4.4% loss.

Spot Gold priced in Sterling rose to £916 per ounce, less than 3% off Monday morning's sudden spike a record high above £940.

"The underlying pace of monetary expansion remains moderate," said ECB president Jean-Claude Trichet at today's post-announcement press conference, failing to repeat April's 0.25% hike.

"We have solid anchoring of inflation expectations."

""The [BoE] committee may not do anything until November," reckons former central-bank official David Tinsley at National Australia Bank in London, quoted by Bloomberg.

"The risks are potentially that they may be on hold for longer than that."

Trading 5% below Monday's short-lived spike to record highs above $1576, the Spot Gold price had earlier slipped on Thursday morning as Asian and European stock markets extended Wednesday's fall, taking the FTSE100 here in London down to a two-week low.

Commodity prices fell once again, and Silver Bullion sank for the fourth day in succession, losing 22.5% against the Dollar since Thursday last week – the sharpest plunge since April 1987.

"If [other] commodities go down by 20%, we expect it to be short-lived," said Walter de Wet of Standard Bank to Bloomberg in London on Wednesday.

"Because this is not the end of the commodities boom, and we're not at the end of the cycle.

"Monetary policy in general still remains very, very accommodative and real interest rates very low, even in countries like China, where inflation is much higher than the deposit rate.

"That really favors precious metals," said de Wet to the newswire.

Over in Asia on Thursday, where the Tokyo stock and futures exchanges remained closed for the Golden Week holiday, "the level of activity is even less than yesterday," one Hong Kong bullion dealer, noting that "exchanges around the world have been rolling out various measures to control their operational risk" in the face of huge volatility.

From Monday next week, the Shanghai Gold Exchange will raise the initial margin paid on new positions in its popular gold and silver futures to 18% of contract value.

A futher hike in margin requirements by the United States' CME will see speculators i  US silver futures charged $21,600 per contract – up by 84% from a fortnight ago.

"Silver investors dump futures as Comex boosts speculator trading costs," says a headline at Bloomberg.

Yet the total number of outstanding silver contracts now open, however, has actually risen over the last week, swelling by 6.2% from Thurs 28 April.

Daily trading volume has gone the other way, standing one-fifth lower on Wednesday from a week before.

"India is already set to double its [private] silver purchases to 1,500 tonnes this year," reckons Mumbai analyst Harminder Baweja, quoted by MineWeb.

"There are reports that [corporate] reserve managers in China are [also] using gold to diversify their exposure to the Dollar. All these point to higher imports in both the countries."

Here in London, the volume of silver bullion held in trust at J.P.Morgan's vaults for shareholders in the New York-listed iShares ETF fell again on Wednesday, shrinking by more than 12% from this time a month ago to 10,387 tonnes.

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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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