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Gold Still Poised for New Highs as UK Inflation Jumps

Commodities / Gold and Silver 2011 May 17, 2011 - 06:57 AM GMT

By: Adrian_Ash


THE PRICE OF WHOLESALE gold bullion was little changed below $1500 per ounce on Tuesday morning, but fell for non-US investors as the Dollar eased back on the currency market and European equity markets cut their earlier losses.

Asian stock markets ended the day lower for the fourth session running, and major-economy government bonds also slipped, as did crude oil.

Silver prices whipped around $34 per ounce, one-third below last month's 31-year highs.

"[Gold Bullion] still seems poised to test new record high prices in the current environment which is still 'gold friendly'," writes Andrea Aratoli at Italian bullion dealers Italpreziosi in Arezzo.

For silver, however, "The increase in industrial demand alone could not justify a rise of more than 180% from August 2010...We  believe that in the short ton medium  term, silver will enter a lateral phase...characterized by high volatility."

Calling it an "improbable" scenario, Aratoli warns that "Of strategic importance [is] silver holding the support area of $33.60, which – if lost – could theoretically deny all the bullish movement of 2011 and decrease to $26."

Gold bullion priced in Euros today fell back from a rally to €34,000 per kilo as the single currency bounced from two-month lows vs. the Dollar.

The gold price in Sterling meantime slipped to a 3-day low of £917 per ounce as the Pound rose following the worst rise in UK inflation since Oct. 2008.

Led by travel costs, plus a record jump in the prices of cigarettes and alcohol, the Consumer Price Index rose by 4.5% per year in April, extending its rise above the Bank of England's upper tolerance – set at 3.0% per year – to 16 months running.

The Bank, however, has now kept its key lending rate unchanged at a record low of 0.5% throughout that time.

"It will be important to keep an eye on Eurozone inflation estimates this week," reckons Andrey Kryuchenkov at VTB Capital in a note to clients.

"In the meantime, we continue to swing back and forth with risk sentiment while still expecting range trading to continue from here."

With International Monetary Fund chief Dominic Strauss-Kahn in a New York awaiting trial for attempted rape, Eurozone politicians met without him on Monday to agree the €78 billion ($111bn) bail-out loan to Portugal.

"Gold fell on Monday," reports MarketWatch, "on worries that Greece might post gold as collateral" on fresh loans, 12 months after its first €110bn loan of 12 months ago.

July 1991 saw the Reserve Bank of India pledge 67 tonnes of gold bullion as collateral to the International Monetary Fund, repaying the $2.2 billion emergency loan within a matter of months but continuing to hold that metal at the Bank of England in London.

In July last year, commercial banks in the Eurozone – perhaps borrowing metal from their local central banks – used 346 tonnes of gold bullion to raise $14 billion in cash loans from the Bank for International Settlements.

Come Nov. last year, derivatives exchange ICE Clear Europe began accepting gold bullion as collateral from speculative traders. US investment bank J.P.Morgan did the same for its clients in Feb. 2011.

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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