Inflation Fears "Make Silver Vulnerable"
THE PRICE OF GOLD jumped to a new all-time high of $1489 per ounce in Asian trade Monday, slipping back as the Dollar then rose vs. the Euro despite Greek protestations that Athens isn't seeking a "restructuring", in which it would effectively default on a portion of its debt.
Major-economy government debt rose in price, but Greek bonds sank – pushing yields to fresh post-Euro highs – while global stock markets began the Easter-shortened week with a 0.5% drop.
The gold price for Eurozone buyers rose to a 5-week high as the single currency fell on the forex market. UK investors wanting to buy gold today saw it re-touch Friday's new 2011 highs at £913 per ounce.
Crude oil meantime extended last week's 2.8% drop, after Saudi oil minister Ali al-Naimi said the global market "is oversupplied".
Silver bullion in London's wholesale market touched a fresh 31-year high before slipping below last week's close at $43 per ounce.
"Fear of inflation...the high oil price...extreme financial difficulties [for some] Eurozone nations...the US debt-crisis...problems in the Arab world...and the situation in Japan...There are more than sufficient reasons why the gold price further extended its gains to a new all-time high," writes Wolfgang Wrzesniok-Rossbach in his latest Precious Metals Weekly at German refining group Heraeus.
"The moderate interest-rate hike in Europe has not had the ability to change the trend, nor has the relatively restrained demand for bars and coins, observed not only in Germany but also in Asia."
A second Eurozone rate hike in May would be a "mistake" said European Central Bank policy-maker Adam Glapinski, head of Poland's central bank, today.
"We'd simply be joining the senseless panic about...inflation. I'll vote against it."
"We need to balance doctrine with pragmatism," said fellow ECB voting member Michael Bonello, chief at the Central Bank of Malta, in an interview on Friday.
"We must be careful not to make it more difficult for countries to grow out of their debt problem."
Speaking early on Monday to CNBC in Hong Kong, "I believe the best currency is gold and silver, but most people still think gold and silver are speculative investments," said Swiss money manager and Asia-based investment author Marc Faber.
"There's a huge overhang of US Dollars globally. If people could sell those Dollars for something they believed in, they would do it. [People] should be their own central banks and gradually accumulate gold reserves as a currency."
As a group, institutional investors slashed their leveraged betting on both the gold and silver price last week, data compiled by London consultancy the VM Group show. But exchange-traded trust funds in gold (Gold ETFs) saw their holdings rise, capping a 3-week run of redemptions.
Exchange-traded silver investment fell across the board, but "despite total global investment sinking by more than 30 million ounces," says VM, "silver went on to hit" a series of new three-decade highs.
"It remains investors who have been pushing the silver price up," says Heraeus' Wrzesniok-Rossbach, "which in our opinion makes the metal that more and more vulnerable for large setbacks.
"Even the only tangible argument about growing industrial demand does not justify the present price level in our view. [But] it would be too early to speak of an end of the silver rally. For there is perhaps still too much cheap money in the financial markets...looking for lucrative investments."
Beijing yesterday raised banking reserve ratios for the fourth time this year, requiring lenders in China – the world's second-hungriest gold investment market – to keep 20.5% of their cash reserves at the central bank in a bid to curb credit growth, a national real estate boom, and consumer price inflation now running at a 30-month high.
"A few emerging markets are running tightly managed currency regimes," said US Treasury secretary Tim Geithner at this weekend's meeting of the International Monetary Fund in Washington, clearly referring to China's continued 'Dollar-peg' strategy for keeping its exports competitive via the exchange rate.
"[That] system of exchange rates is an obstacle to effective international co-operation on [trade] imbalances," Geithner claimed.
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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