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Gold and Silver Near 2010 Highs, Safe Haven Premium Supported by Credit Risks & Rising Liquidity

Commodities / Gold and Silver 2010 Apr 30, 2010 - 08:59 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF GOLD rose to a near 5-month high in Dollars in London on Friday, adding 1.4% from last week's finish as the long May Bank Holiday weekend drew near.

A rally in Asian stock markets faded in Europe, but the Euro jumping back above $1.33 on rumors of a weekend deal for an Athens bail-out.

Gold priced in Euros traded towards a record weekly finish around €28,400 per kilo, some 1.3% below Wednesday's intra-day peak.

US investors wanting to buy gold today saw it move towards the second-best weekly finish ever, rising above $1175 an ounce.

Silver prices jumped within 20¢ of their 2010 highs, rising 2.0% from last Friday's close to $18.74 an ounce.

"Events in Europe have refocused investors' attention on the value of gold as a hedge versus currency debasement," notes the Natixis bank research team led by Patrick Artus in Paris, "with the gold price denominated in Euros rising to new highs this week as the Greek debt crisis intensified."

But noting the recent interest-rate hikes by China, India and Brazil, however, "If the negative cost of carry on leveraged gold positions was to rise, so the gold market contango would be expected to steepen," says Artus, "to the detriment of spot prices."

On the contrary, says Walter de Wet at Standard Bank in London, gold is enjoying "a safe haven premium."

"Unlike crude oil," de Wet writes, "gold has been consistently trading at higher levels for the same Euro/Dollar exchange rate since 2007." This means "there are other factors inflating the gold price" besides the US currency, in which both oil and gold are usually priced for convenience.

"These factors, we believe, are predominantly credit liquidity and ease of storage. We expect credit risk to remain elevated for most of 2010. We also expect liquidity to continue to grow this year.

"Therefore we expect support for gold to remain largely in place."

Crude oil today rose above $86 per barrel, some 40% below its all-time top of July 2008.

New data released in Tokyo meantime showed Japanese consumer prices falling further in March, the 13th consecutive month of deflation.

Spanish unemployment rose above 20% for the first time in more than 10 years.

US economic growth for Jan. to March was pegged by the BEA at 3.2% annualized, recovering one-third of 2009's full-year drop in Dollar terms.

Disposable personal incomes were flat. Personal consumption rose 3.6%.

Swiss shareholders meeting in Zurich blocked Credit Suisse's proposed pay and bonus packages. European regulators said they are bringing "high-frequency trading" by investment banks into their review of the Market Abuse Directive.

The US Justice Department said it's begun a criminal investigation into Goldman Sachs' mortgage-bond derivatives deals.

"You have a lot of investors who are still very bullish on gold but they're a little hesitant to buy at what really are elevated prices," says Jeffrey Christian, head of New York's CPM Group consultancy, speaking on Thursday to South Africa's MineWeb.

"On the other side of the table you have a lot of investors who had been driven by shorter-term economic factors – recession, a credit freeze, the stock market...

"Now we're coming out of that...there is reduced need for gold as an asset, as a portfolio hedge in the minds of those people who have been investing on a shorter-term basis."

Greek politicians on Thursday agreed new "austerity" measures to try and cut the government's budget deficit by 10 percentage points of GDP by end-2011.

"There isn't much room for maneuver. This is about saving the country from collapse," the FT quotes Andreas Loverdos, Athens' social affairs minister.

So far, of the 3-year package of aid now set at €120 billion, Cyprus has approved €60m, Belgium has drafted a law to lend €1bn, and German politicians are set to discuss an $8.4bn contribution next week.

There is no word as yet from France, Italy or Spain on their commitment to the proposed bail-out.

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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