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Commodities / Gold and Silver 2010 Jan 26, 2010 - 08:29 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF GOLD fell against all currencies except the Euro early in London on Tuesday, dropping near 4-week lows at US$1083 per ounce as the Japanese Yen and US Dollar rose, and world stock markets slipped yet again.

Crude oil dropped further below $75 per barrel while government bonds rose worldwide.

The Bank of Japan left interest rates in the world's second-largest economy at 0.1% for the 13th month running.

Britain reported an end to the UK's longest recession since the 1930s, thanks only to economic growth of 0.1% during the last 3 months of 2009.

"Gold and silver have erased their year-to-date gains," notes Walter de Wet at Standard Bank, "while platinum and palladium are still up 4.5% and 7.1% respectively."

Silver prices today fell for the fourth time in 5 sessions, dropping over 12% from last week's high to trade at the lowest level since late October at $16.58 an ounce.

The net bullish position held by speculative traders in New York gold derivatives last week fell 22 tonnes to 777 tonnes, notes Standard Bank's de Wet, falling as a percentage of all open contracts to 33% from 35% a week earlier.

That ratio hit all-time record peaks above 42% in late Sept. '09.

Overall, global speculation in gold futures, options and exchange-traded trust funds worldwide eased back by 0.5% last week, says the latest analysis from London's VM Group, published in its Precious Metals Weekly for Fortis Nederland Bank.

Speculative buying in Japan's Tocom gold market "bucked the trend," the consultancy adds, but "since our cut off date [of last Tuesday] it has also fallen back...suggesting investors there may be as nervous as elsewhere about the sustainability of the gold price rally."

Tokyo's 12-month gold futures today slipped a further 0.3% in price, ending the session just above a 12-week low at ¥3163 per gram.

Tokyo's Nikkei share index meantime fell for the fourth session running, closing a full 6.0% below last week's 15-month high.

China's Shanghai stock market had earlier dropped 2.4% on news that domestic banks had been ordered to further increase the proportion of depositors' money kept back in reserve.

"It was later clarified that this was simply an implementation of an earlier decision and that no new banks had been affected," says Gareth Berry, a UBS analyst.

"Markets took no chances however."

Here in London today, the FTSE100 stock index dropped to its lowest level since mid-Dec., as did 10-year UK gilt yields, pushed down to 3.85% as investors switched from shares to bonds.

After Monday's auction of Greek sovereign debt met strong demand from investors thanks to its 6.0% annual coupon, Fitch Ratings notes that Eurozone governments need to raise €2.2 trillion from the bond market this year, a rise of 3.7% from 2009's record level.

Standard & Poor's today cut its "outlook rating" on Japan's government debt to "negative" from "stable", calling Tokyo the "world's largest net external creditor."

"Remember, if something is too big to fail it is too big to exist," says CLSA's Christopher Wood in his much-followed Fear & Greed letter to clients, warning that global banking reform is likely to mean "structurally lower returns on equity" for banking stockholders.

"That is something Joe Sixpack can understand even it remains a point hard to grasp for the sophisticates in New York and Washington and the rest of the Davos Crowd."

Technical analysis from one major dealers' team in London today says that "Major support for gold at $1070 is now coming into play."

"From a technical point of view, we're in a tricky area," says another trader, speaking to Reuters. "There's support at $1075 an ounce."

MKS Finance in Geneva pegs nearby support for the gold price at $1080 and then $1065 an ounce.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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