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Gold Lacks Momentum, Silver Volatility Nears 30-Year Record

Commodities / Gold and Silver 2011 Sep 28, 2011 - 08:38 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticlePRICE-ACTION in wholesale gold markets remained volatile in Asia and London on Wednesday, holding the gold price within $20 per ounce of last week's finish – some 7% above Monday's two-month low – around $1650.

This week's strong rally in global stock markets faded and industrial commodities also eased back, and Japanese and US government bonds were little changed as the Yen and Dollar continued to slip from last week's sudden jump.

German Bunds fell in price – nudging interest rates higher – as new inflation data showed stronger than expected consumer-price rises in five German states.

UK government bonds rose, pushing 10-year gilt yields down towards 2.5%, fully two percentage points below the latest reading of consumer-price inflation.

"We view the very strong rally across both the equity and commodity markets as more of a relief rally, unlikely to be sustained," says the latest note from Standard Bank's commodity team, pointing to the difficulties facing the Eurozone's plans to expand its 'stabilization' bail-out fund.

"However, momentum [in the gold price] is lacking as investors adopt a seemingly cautious attitude to entering the gold market after last week's abrupt price fall."

US crude oil contracts slipped back from $85 per barrel overnight, and base metal prices also fell, leaving copper almost 14% down week-on-week.

Like gold, the silver price held near last week's finish, but traded in a wide range around $32 per ounce.

Since the $50 peak of Jan. 1980, daily volatility in the silver price has been greater in only two periods on a rolling 1-month basis – in spring 1987 and then in May this year.

Volatility in gold, on the other hand, was sharper than today in March 2009, Sept-Dec. 2008 and May-June 2006, as well as in spring 1983, autumn 1982, and early 1981.

"I doubt if [the gold price ] will go to $2000 an ounce in 2011," says Jim Rogers, investment author, founder in the 1970s of the highly successful Quantum Fund with George Soros, and now chairman of Rogers Holdings.

"Gold is more likely to have a correction which will last for several weeks, several months," Rogers tells the Economic Times of India in an interview.

"If it goes down some more, I would buy more gold. If silver continues to go down, I will buy more silver too. Do not sell...unless you are a short-term trader."

Greek government bonds meantime ticked higher on Wednesday after the government in Athens – now suffering its fourth transport strike in as many days – won approval last night for a new property tax to be collected through electricity bills and aimed at raising €1.8 billion, some 1.1% of GDP.

"I have heard so far that Greece is ready to meet the conditions" of its next €8bn rescue payment from the International Monetary Fund and its European partners, said German chancellor Merkel after the vote.

"We want a strong Greece in the Euro area and Germany is ready to offer all kinds of help that is needed."

German lawmakers will vote Thursday on allowing changes to the €440 billion Eurozone stabilization fund – changes now ratified by 9 of the 17 member states. The European Commission meanwhile formally proposed a new financial transaction tax today, aimed at raising some €57bn by charging 0.1% on all institution-to-institution trades and due to start in 2014.

The tax will "ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the member states," according to the EC.

Here in London, shares in Man Group fell nearly 20% on Wednesday morning after the hedge fund manager's latest earnings report showed investors withdrawing $3 billion over the last 3 months from the GLG funds which it acquired last year.

This is already the fourth week running that Germany's Dax stock-market index has moved by more than 6%.

"Little [gold] buying interest out of China ahead of the week-long holidays," says one Hong Kong precious metals dealer in a note, but "Selling was less intensive and the price moves less vicious," says another.

"The decline in the past two weeks has fully unwound a lot of the bullish enthusiasm [to Buy Gold] grounded in the market's anticipation of QE3 or other inflationary Fed actions," says MF Global's Tom Pawlicki.

"We saw some ETF liquidation, and liquidation of speculative positions from the West," agrees Neil Gregson at J.P.Morgan Asset Management.

"When things start to go into panic mode, you could sort of say it was this 'dash for cash' that happened post-Lehman's."

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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