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Commodities / Gold and Silver 2011 Jan 06, 2011 - 08:51 AM GMT

By: Adrian_Ash

Commodities

INVESTORS LOOKING to buy gold saw the Dollar price slip back from an overnight bounce but rise in Euro terms Thursday morning in London, as world stock markets rose and the US currency extended its rally.

Crude oil also slipped against the Dollar but held above $90 per barrel after yesterday's 1% jump on unexpectedly strong US economic and energy demand data.


Silver prices bounced to $29.30 per ounce from the last 3 sessions' 7% drop.

"If [Friday's US] payrolls data meets or exceeds expectations, it will put some pressure on gold prices in the short term," a Hong Kong dealer told Reuters.

"But this year gold is still on uptrend...[Today] we see very good physical demand help push gold from below $1370 to the current level."

Traders from both India and China, the world's top two physical gold consumers, were "heavily on the bid" for gold overnight, confirms another dealer, noting that – ahead of next month's Chinese New Year celebrations – premiums above London spot gold prices today rose to $1.30 per ounce in Hong Kong.

"Our physical gold sales to India [on Tuesday] were the highest in 12 months," said UBS strategist Edel Tully in a note – "a time when gold was trading around $1100."

But "despite very decent physical demand across much of Asia," she adds, "a stronger Dollar and, more importantly, growing conviction in the US recovery as macro data improves [mean] gold is struggling to assert itself."

The Bombay Bullion Association said Wednesday that India's gold bullion imports reached 700 tonnes in 2010, a rise of 46% from 2009's depressed levels.

The BBA says 2011 imports may hit a record 810 tonnes thanks to rising gold investment demand stoked by inflationary fears and enabled by fast-rising household incomes.

"China's economy is continuing steady and relatively fast growth [but] our country is also facing rising inflationary pressure and expectations," says People's Bank of China governor Zhou Xiaochuan in a new magazine interview.

Rather than discussing further interest-rate hikes – which left saving-deposit rates untouched at barely half the current pace of consumer-price inflation last month – "we may dynamically adjust selective reserve ratios" to try and curb new lending by China's banks, he said.

Zhou also blamed "the quantitative easing policies adopted by the US and other major economies" for a "noticeable spill-over effect on international liquidity, which further intensifies imported inflationary pressure."

"The fundamentals sustaining the gold rally will continue to be strong in 2011," reckons BNP Paribas analyst Anne-LaureTremblay, highlighting "problems on liquidity, inflation and concerns on the US Dollar."

Back in Thursday's action, a slight drop in Sterling saw the gold price in British Pounds trade little changed near 3-week lows at £882 per ounce.

The gold price in Euros meantime rose to regain half of this week's near-3% drop as the single currency fell on the forex market.

Wednesday saw the first sale of the 17-nation Eurozone's "Stabilization Mechanism" bonds, used to save Ireland from going to market to finance its massive budget deficit.

In the open market, the European Central Bank "remains the main buyer of Portuguese government securities," says a note from Goldman Sachs.

"Since May, the ECB has effectively removed from the private markets roughly the equivalent of the entire gross supply of Portuguese medium-to-long-term government bonds for 2010."

Sold with an annual coupon of 2.50%, the Eurozone's collective ESMF bonds – issued with a 5-year maturity – pay less than a third of what the market currently demands on 10-year Irish debt.

Five-year German bonds currently offer a yield of 1.87% per year. German consumer-price inflation was pegged at 1.8% year-on-year in Dec.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

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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