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Gold & Silver Jump vs. Falling Dollar, "FX Volatility" Seen Driving Demand

Commodities / Gold and Silver 2011 Mar 21, 2011 - 08:20 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD jumped against a falling Dollar at the start of Asian trade on Monday, hitting near-two-week highs for US investors as crude oil also leapt following the weekend's joint UN air strikes on Libya.

The BBC reported that a key Gaddafi "command center" had been destroyed in Tripoli, capital of Africa's third-largest oil producer.


In Yemen, meantime, a senior general defected to the opposition, while Sunday's referendum in Egypt returned a huge majority for constitutional reform.

World stock markets rose over 1.5% on average. Silver bullion prices jumped more than 2% to recover what was left of last week's 6.5% drop.

Ahead of this week's European summit on the region's sovereign debt crises, the US Dollar meantime fell to a 9-week low vs. the Euro at worse than $1.41.

That capped the jump in Euro gold investment prices below €32,500 per kilo, unwinding one-half of last week's 2.5% drop.

"With the increased volatility in the foreign exchange market, many traders and investors [have] turned to the precious metals as a safe haven," says a note from Commerzbank's analysts.

"Some speculators have been selling today, taking the opportunity of higher prices," Reuters quotes a dealer in Singapore, where premiums over benchmark London gold investment bar prices held firm around $1 per ounce.

But despite Tokyo being closed for the Spring Equinox, Asian precious-metals volumes "were decent",  says a Hong Kong dealer, after the metal "gapped higher" at the start of electronic Globex action.

Engineers at Japan's Fukushima nuclear power plant said on Monday they'd restored electricity to threee of its six stricken reactors. But smoke was seen forcing staff to evacuate another unit, and the United Nations' atomic watchdog said the situation is still "very serious".

With 8,450 already confirmed dead after this month's earthquake and tsunami, Japan today widened its ban on spinach, milk and other food supplies from the affected area.
 
"It'll take some time to rebuild, but it will not change the economic future of Japan," said legendary investor Warren Buffett, chairman of Berkshire Hathaway, on a visit to South Korea today.

"Something out of the blue like this, an extraordinary event, really creates a buying opportunity."

Already swelling its current account last week by a record ¥15,000 billion ($185bn), "The opportunity [also] just opened up for the Bank of Japan to not be worried about such issues [as the] fear and accusation of currency manipulation," says Bank of America Merrill Lynch analyst Bin Gao.

Advising Tokyo to engage in fresh quantitative easing to devalue the Yen, Bin notes that China's central-bank balance sheet is more than twice the size in terms of domestic GDP (68% vs. 27%), almost entirely made up of foreign assets "and no one seems to be too concerned!"

"Gold's fate will depend on the evolution of the situation in Japan and in Libya," reckons a note from Swiss refiner MKS's finance division.

"We expect the metal to stay supported by the safe haven buying fueled by the uncertainty and worrying aspect of the two crisis."

As gold investment prices fell sharply early last week, the "net long" position of speculative traders in US gold derivatives shrank at its fastest pace since July 2010.

Down by 11% in the week to last Tuesday to the equivalent of 789 tonnes, the difference between bullish and bearish contracts held by non-commercial, non-industry players in gold futures first reached that level in late 2007.

The volume of gold bullion held to back shares in the giant SPDR Gold Trust fund, in contrast, jumped on Friday to unwind 5 weeks of decline, rising back to 1226 tonnes.

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 2011

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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