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Silver Market at Standstill and Gold Going Nowhere

Commodities / Gold and Silver 2011 May 20, 2011 - 10:10 AM GMT

By: Ben_Traynor

Commodities

U.S. DOLLAR gold prices rose above $1500 Friday morning, 0.6% above where they started the week, but barely changed since two weeks ago, while stock and commodity markets also rose.

Gold prices have now traded in a tight range within 2% of $1500 since May 6.


"Market is dead quiet today," said a Hong Kong bullion dealer on Friday, adding that gold prices have "basically gone nowhere" this week. 

"Silver has [also]come to a standstill," Reuters quoted one Singapore dealer.  "That's a pity, but allows time for us to focus on gold... I heard there's not much movement in Hong Kong and there isn't gold scrap flowing through there. Basically, the Hong Kong supplies are one-way traffic into China and there's limited selling out."

Chinese demand to buy silver is also "off the charts", a senior Tokyo precious metals executive privately told BullionVault on Tuesday.

"Despite the ongoing volatility in the silver price, [Indian] investors appear to not only be holding on to their silver but also looking to add to their existing pool of metal, keeping the Indian market in net investment," says Gargi Shah, analyst at precious metals consultants GFMS, in its latest quarterly newsletter.

The SLV iShares Silver ETF – the largest Silver ETF in the US – saw a net outflow of 330 tonnes of silver bullion in the week ended Thursday. The SLV's silver stock has dropped 10% since it peaked on April 25.

Silver prices were heading for a flat close on the week Friday lunchtime in London, at around $35 per ounce.

Away from Asia, the US Federal Reserve has "a considerable way to go" to meet its dual mandate of full employment and price stability, according to William Dudley, president of the Federal Reserve Bank of New York. 

The Fed "will exit [its asset purchase program] in a timely way," said Dudley on Thursday, adding that the Fed would "make sure" its asset purchases would not become a source of inflation.

"Substantial policy accommodation continues to be appropriate," reckons Dudley's Fed colleague Charles Evans, president of the Federal Reserve Bank of Chicago.

The first round of quantitative easing, QE1, began at the end of 2008 and saw the Fed buy $1.75 trillion worth of assets, mostly US Treasuries. QE2 – worth $600 billion – began in November last year and is due to end next month.

"I don't see how QE cannot go on in some form [after June] because who's going to be left to buy the Treasury debt if not the Fed. It's hard to believe that the Fed would just shut down," says Leo Larkin, metals equity analyst at Standard & Poor's.

Over in Europe, the yield on Greek 10 Year government bonds hit a record high Friday, at 16.5%, implying investors see Greek bonds as even riskier. The previous peak was 16.3% on April 27.

"The big headline of Greek debt reprofiling is really what defines the whole story," reckons Ioannis Sokos, London-based interest-rate strategist at BNP Paribas. "It's not a matter of if there's a reprofiling. It's a matter of when and how significant it is."

The European Commission this month forecast that Greece's budget deficit will reach 9.5% this year, exceeding the 7.5% target set by the EU as part of the €110 billion Greek bailout.

The bailout "won't remain on track without reinvigoration of structural reforms," Warned Poul Thomsen, the International Monetary Fund's deputy director Europe, on Wednesday.

On Thursday, Greece's Economy and Competitiveness minister Michalis Chrisochoides announced that government would freeze rents for cinemas and theaters, while state-owned hotels will see their rents cut.

By Ben Traynor
BullionVault.com

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

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(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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