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Silver Out-Runs Gold 3 Times Over as Libyan Civil War & Saudi-Oil Risks Drive Global Demand
London Gold Market Report
from Adrian Ash
THE PRICE OF GOLD in US Dollars ticked higher to reach a new all-time record in London trade on Wednesday, touching $1436 per ounce as crude oil rose further above $100 per barrel and world stock markets fell for the eighth session in nine.
The US and other Western governments backed down from intervening in Libya's civil war, while Colonel Gaddafi vowed to "fight until the last man and woman".
Silver bullion broke new 31-year highs just shy of $35 per ounce, out-running gold's 8% gain of the last month three times over.
Saudi Arabia's stock market sank yet again on Wednesday's, taking its losses since last week to 15.5%.
"Stability in Opec's largest oil exporter seems to be more bought than fundamentally established," says the Vienna-based JBC Energy consultancy, adding that "the recent unrest in [neighboring] Bahrain is therefore of particular importance...as the small country is surrounded by the vast majority of Saudi oil production."
"The more the market becomes concerned about inflation or concerns about unrest in Africa, more and more people will look to gold," reckons UBS global commodities strategist Peter Hickson, claiming that gold bullion sales to China topped 200 tonnes in the first two months of this year.
China's total private purchases in 2010 reached a record 580 tonnes, according to London's GFMS consultancy.
"Chinese interest is huge," agrees Bank of Nova Scotia's head of precious metals in Hong Kong, Peter Tse, saying that "Demand for physical gold and imports increased substantially" in the run-up to last month's Chinese New Year celebrations – a traditional season for gift-giving and 'auspicious' investment.
On the official side, "Some have argued that we should buy oil, buy gold, buy iron ore, or even buy into companies and land," said Yi Gang, head of the $2.85 trillion State Administration of Foreign Exchange, in a speech at Peking University today.
"[But] if we..buy commodities, we will immediately push up prices," said Yi – repeating comments he made in March 2010. "These markets, compared to the size of our foreign exchange reserves, are too small."
To cap the Yuan's exchange-rate with the Dollar, the People's Bank of China bought over $76 billion-worth of foreign exchange from commercial banks in Jan., new data showed Wednesday – a 24% jump from Dec., according to Reuters.
New data from the 17-nation Eurozone meantime showed industrial input-price inflation jumping to its highest level since Dec. 2008 at 6.1% in Jan.
Across the 27-member European Union, industrial input prices rose 6.5% year-on-year, unwinding the last of the near-10% slump from mid-2008's record highs amid the global banking crisis.
"We remain bullish on gold and silver as we remain in a loose monetary policy environment," says MKS Finance in Geneva's daily note, "[but] we wouldn’t rule out a small correction due to the longs that must have accumulated in the market."
"The total net long position" of speculative players in US gold futures "is at its highest since the week ending 4 January 2011," says the latest Precious Metals Weekly from London's VM consultancy.
A continued drop in physically-backed trust fund allocations, however – plus another fall in Tokyo futures' positions – capped last week's total rise in exchange-traded gold investment products to 1.4% on VM's data.
Silver investment leapt 2.5% in contrast, led by ETF demand even as US futures' positions were cut back.
"The Gold/Silver Ratio [of per-ounce prices] is approaching the 1998 low on its weekly chart," says Mitsui's dealing desk in London. So "it's likely there was some buying of the ratio [on Tuesday]...That could explain gold's rare outperformance of the grey metal."
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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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