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Gold and Silver Slip as "Soft Dollar" Loses to "Vigilant" Euro

Commodities / Gold and Silver 2011 Mar 22, 2011 - 08:20 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD slipped together with crude oil, government bonds and European stock markets on Tuesday morning, retreating 0.7% from yesterday's near 2-week high against the falling US Dollar.

Power cables were reconnected at all 6 of the stricken nuclear reactors in Sendai, Japan, where some half-a-million people remain homeless.

Amid fresh UN-approved air-strikes on Gaddafi loyalists, a US airforce jet crash-landed in Libya but the two-man crew survived, a Pentagon spokesman said.

"In spite of enormous geopolitical strains," says Standard Bank's chief currency strategist Steven Barrow, "the Dollar remains soft.

"In the short-term we may find that Euro/Dollar rallies to $1.45, even $ long as the Eurozone debt crisis does not explode again. But we would not want to bet that particular powder keg can remain unlit forever."

The Euro price of gold bullion today slipped back to last week's finish just below €32,000 per kilo – reversing Monday's 1.0% rise – as the single currency hit new 6-month highs to the Dollar above $1.4240.

UK investors wanting to buy gold today saw the price slip to £870 an ounce – down 1.4% from Monday's peak – as the Pound hit a 13-month high after new data showed Consumer Price Inflation jumping in Feb.

Rising to 4.4%, CPI inflation was well over twice the Bank of England's official target. It's now been in breach of the Bank's upper tolerance of 3.0% for the 14th month running.

Clothing & Footwear prices, having fallen for 18 consecutive years, rose year-on-year for the sixth month in succession in Feb.

"The risks to medium-term price developments are tilted to the upside," said European Central Bank voting member Gertrude Tumpel-Gugerell in a speech on Tuesday, repeating ECB president Jean-Claude Trichet's vow of "strong vigilance".

"You might say that interest rates were too low for Ireland" during the pre-2007 boom, Trichet told European lawmakers on Monday, but "they were the interest rates that were appropriate to deliver price stability as a whole."

"My working assumption is that Ireland can do it, Ireland will do it," Trichet said of the struggling state's debt-reduction plan.

"We can handle an increase in interest rates without any difficulty," said Spanish finance minister Elena Salgado on Madrid radio today, speaking after Eurozone politicians agreed a €700 billion ceiling for the new European Stability Mechanism – due to start in 2013 and with 27% backing from Germany.

"All countries in the Eurozone are ready to help," Salgado added.

Spain's government debt was today re-accepted as an eligible investment for Russia's $91 billion National Wellbeing Fund, used by Moscow to shelter its oil revenues.

Over in Portugal, according to press reports, state-owned railtrack manager Refer-Rede Ferroviaria Nacional delayed the sale of a €500 million bond, and – together with state-owned railway firm CP-Comboios de Portugal – asked Lisbon for financial aid.

Portugal's economy will contract by 0.9% in 2011 said the government in a new forecast released last night.

Over in China meantime – where the World Bank now expects GDP growth of 9% this year – "Gold buying fever shows no sign of abating so far in 2011," says the latest monthly report from Japanese metals conglomerate Mitsui.

"Gold sales on the Shanghai Gold Exchange were strong again in February, both before and after the Chinese New Year holidays," says the report, noting that – by the end of last month – cumulative sales outpaced 2010 by one third, "running at double the pace of the early part of 2008 or 2009."

In Asian trade overnight, "Physical buying dried up" says one Hong Kong dealer, leaving the action "lackluster".

Longer-term, however, "Precious metals are surging higher again," says Axel Rudolph in his latest Technical Analysis Research for Commerzbank clients, "having probably ended their recent corrections lower."

The "long-term uptrend" in gold bullion starting back in late 2008 with the collapse of Lehman Brothers now sits at above $1332 per ounce, says Rudolph.

In silver, "Unexpected slips should find last week's $33.57 low point.

"While above here our short-, medium- and long-term forecast will remain bullish."

Silver prices eased 2.3% lower from one-week highs Tuesday morning in London, trading at $35.90 per ounce as the start of New York dealing drew near.

By Adrian Ash

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 , 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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