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Gold Silver Ratio Jumps, ECB Points to Deflation Risk

Commodities / Gold and Silver 2011 Dec 02, 2011 - 01:47 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleWHOLESALE PRICES in the gold investing market continued to rise Thursday morning in London, extending yesterday's 2.8% jump after the world's biggest central banks offered unlimited short-term loans to their local banking sectors.

Crude oil also held near two-week highs after the United Kingdom called for "international financial isolation" of Iran following this week's attack on its embassy in Tehran.


The Euro currency traded just shy of $1.35 – some 2.5¢ above Wednesday's start – as Spain successfully sold €3.75 billion in new 5-year debt, offering the highest interest rate since 2005 according to Bloomberg.

European stock markets failed to extend yesterday's 3% jump, however, drifting sideways by lunchtime.

"The ECB's monetary policy is constantly guided by the goal of maintaining price stability in the Euro area over the medium term," said Mario Draghi Thursday morning in his second speech as European Central Bank president.

"And when I say this, I mean price stability in either direction," he added – meaning both the threat of inflation and of deflation in prices.

There are "only 10 days to save the Euro" said a raft of newspaper and website headlines Thursday, quoting Euro commissioner Ollie Rehn's reference yesterday to the European summit to be held in Brussels at the end of next week.

Urging tighter Eurozone fiscal co-operation, "A credible signal is needed to give ultimate assurance over the short term," said the ECB's Draghi today.

Wednesday's $30 rise in gold investing prices saw the metal "trading right through the previous trendline resistance," says the latest chart analysis from bullion bank Scotia Mocatta.

"This has shifted intermediate term technicals to neutral. We would like to see the trendline hold on the downside, around $1720, to confirm a trend reversal" after gold investing prices slid from a record peak of $1920 in early September.

"The 30-week moving average at $1652.61 continues to offer good support," according to the latest technical analysis from Axel Rudolph at Commerzbank.

But "Year-end is approaching and few investors want to be heroes," says UBS precious-metals analyst Edel Tully, citing a stronger Dollar and a lack of "conviction" amongst gold buyers for gold not attracting "safe haven" flows amid the Eurozone crisis.

The MSCI Barra index of global stock markets surged 3% on Wednesday to end November 0.8% higher.

Physical gold prices rose 1.4% last month against the US Dollar, while the Euro currency fell over 3% and silver prices fell more than 8%.

Wednesday saw the Gold/Silver Ratio – which shows how many ounces of silver it takes to buy 1 ounce of gold – jump to 55.7, its highest level since late September.

Averaging 53 since the gold price was allowed to float in 1968, the Gold/Silver Ratio hit a 3-decade low of 32 in May this year, as silver prices doubled inside six months to near all-time record highs.

"[Gold investing] clearly cannot be defined as having been a bubble," Bloomberg today quotes Credit Suisse's precious metals analyst Tom Kendall.

The volume of gold bullion held to back shares in exchange-traded trust funds yesterday rose to a fresh record of 2,356 tonnes, the newswire says, worth $133 billion at today's London Gold Fix.

Jewelry sales in China – the world's No.2 gold consumer market – could reach CNY330 billion ($52bn) in full-year 2011 according to Cheng Binghai, chairman of the Shanghai Gold & Jewelry Trade Association.

China now accounts for a quarter of Australia's mineral and energy exports, which reached a quarterly record of A$49 billion (US$50bn) between July and Oct. according to new data today, driven by higher prices for coal and gold mining output

But a survey from HSBC Bank yesterday showed China's manufacturing sector contracting for the first time since Feb. 2009, with new export orders falling sharply, while the People's Bank of China cut the amount of savers' deposits which commercial banks must keep back, rather than lending on, by half-a-percent to 20.0%.

"This is the first time in 3 years that the central bank has lowered the required reserve requirement," says Beijing's Economic Observer, "an indication that the central bank may gradually be starting to loosen monetary policy settings."

Japan's steel industry will cut its output sharply this quarter, the head of Nippon Steel told a conference today.

Brazil's central bank yesterday cut interest rates in Latin America's largest economy by half-a-point for the third month running.

"Given the low growth environment [worldwide], we do not feel it is prudent to be long on the commodity complex indiscriminately," said a report from Morgan Stanley analysts earlier this week.

"The defensive nature of gold should continue to support investment demand as investors look for safe havens," the report says, repeating the investment bank's call for gold investing to outperform other commodities in 2012, rising to an average price of $2,200 per ounce.

"A continued low or negative real interest rate environment will also provide support" for gold investing, the Morgan Stanley team believe.

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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