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Gold Down, Silver Up as Risk-Friendly Chinese & Basel News Outweighs Ongoing Double-Dip Fears

Commodities / Gold and Silver 2010 Sep 13, 2010 - 10:44 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD in professional, wholesale dealing reversed an earlier 0.4% drop for Dollar investors as London trade drew to a close on Monday, rising back above $1247 an ounce – but staying lower vs. non-US currencies – as world stock markets rose and government bonds slipped.

Crude oil rose through $77 per barrel, while the Euro jumped almost 2¢ to a one-week high above $1.2865.


That pushed the gold price in Euros down to a one-week low beneath €31,150 per kilo.

Silver prices meantime leapt to fresh 30-month highs above $20.25 per ounce

"Risk appetite's back on after the Chinese data and banking reg's news," said one London bullion dealer this morning.

Beijing today reported stronger-than-expected money supply, retail sales and industrial output growth.

The Basel Summit of financial regulators meeting in Switzerland meantime agreed to raise reserve requirements – the volume of depositors' cash which banks must keep back, rather than lending a-new – from 2% to 7%.

"The proposed rules on leverage ratios should make such crises [as the global financial crisis] less likely to occur in the future," says Nomura's chief European economist, Peter Westaway.

"[But] there is nothing in today's agreement that explicitly addresses the too-big-to fail issue."

Short term, notes the latest technical analysis from Russell Browne at bullion bank Scotia Mocatta, "Gold had moved up 5 weeks in a row off $1157 until the momentum ran out [last] week.

"$1137 remains a support," he reckons, while "$1254 is once again a resistance on any bounce."

New data released late Friday by US regulator the CFTC showed short-term speculative players in the gold futures and options market growing their bullish position by 1.7% in the week-to-last Tuesday.

Swelling to the largest level since the end of June as the gold price revisited that week's record high at $1265 an ounce, the "net long" position (of bullish minus bearish bets) rose to the equivalent of 995 tonnes.

The net speculative players' average position over the last five years is 695 tonnes. It peaked at 1021 tonnes in Oct. 2009.

"While speculative interest is rising, we do not view it as over extended yet," writes Walter de Wet in Standard Bank's Commodities Daily.

"Combined with good physical demand, the rise in speculative interest remains supportive," he says, repeating Standard's view that gold's long-term bull market is being driven by low real interest rates on cash, plus strong growth in global liquidity.

"Gold futures seem to indicate that investment demand for gold will remain healthy in 2011."

Despite the rise in "risk appetite" sparked by Monday's China and Basel banking news, "In the long run, gold is still well supported," Reuters quotes Andrey Kryuchenkov at VTB Capital – "not least because of seasonal demand, because on every dip it will be supported by demand in Asia."

Furthermore, says the latest Yellow Book of analysis from London's VM Group for ABN Amro Bank, "There remains almost unprecedented investor interest in gold – certainly more than sufficient to mop up" the 2010 residual between global supply and jewelry/industrial demand, which VM now sees nearing a record 818 tonnes.

"We do not anticipate this interest on the part of the investor to wane over the next 12 months (at least)," the 46-page report concludes, citing uncertainty over "a double-dip recession" and the likely response of Western governments, especially fresh quantitative easing.

"[This] would only in turn heighten the threat of higher rates of inflation a couple of years down the line."

By Adrian Ash
BullionVault.com

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 www.BullionVault.com , 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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