Gold, silver regain appeal on latest ECB liquidity offer
Investors believe the rise in both gold and silver prices will prevail in line with a rise in stock markets, on the back of new liquidity measures by the ECB to curb the region's debt.
Posted: Thursday , 12 Jan 2012
LONDON (BullionVault.com) -
The PRICE of BOTH gold and silver hit a 1-month high in London on Thursday morning, gaining 0.9% and 2.1% respectively as world stock markets also rose, as did the single Euro currency and industrial commodities.
US, German and UK government bond prices all ticked lower, nudging yields higher, after Spain and Italy successfully auctioned €22 billion in new debt between them, and at much lower interest rates than investors demanded in December.
Dollar prices to buy gold touched $1658 per ounce. Silver extended its New Year gains to 10.0% at $30.70.
"Because gold is easy to sell, it has seen the same flight to cash that risk assets such as equities have suffered," says Mark Dampier head of research at UK equity and fund brokerage Hargreaves Lansdown, writing in Money Marketing magazine.
However, "The attractions of gold remain undiminished...I believe the fall back in price could present a buying opportunity," says Dampier, advising investors to consider "more risky and potentially more rewarding" exposure to gold through mining stocks.
"Clearly the uptrend [in gold] will prevail," agrees UBS Wealth Management's head of commodity research Dominic Schnider.
"[But] technically we are still in a consolidation period after the record high in September, and this phase will likely end in end-February or early March."
Ending New York trade on Wednesday some 0.3% higher - and "finally closing back above its 200-day moving average at 1636" - the rising price to buy gold means "We are more neutral now from our bearish outlook," says Scotia Mocatta's latest technical analysis.
Wholesale demand to buy gold in Hong Kong was "slow" overnight according to one local dealer.
"This is surprising," says Thursday's commodities note from Standard Bank, "given that we usually see a seasonal pick-up in physical gold demand from China ahead of the New Year celebrations" - falling earlier than usual in 2012 on January 23rd.
China meantime reported a drop in consumer-price inflation to 4.1% annually for December.
Currently offered just 3.5% annual interest on bank deposits, Chinese households were today deprived of yields of up to 9% offered by trust funds investing in short-term debt issued by banks and corporations known as commercial paper.
"We have received the phone call today, and the product has been banned," Reuters quotes an un-named executive with a state-owned trust.
"If the notes aren't sold to banks, it's equivalent to moving a loan off banks' balance sheets," says She Minhua at Zhong De Securities.
One Chinese data provider says 17 such commercial-paper trusts were launched in 1 week in December. The China Banking Regulatory Commission reckons their total value is perhaps CNY300 billion ($48bn).
Beijing yesterday announced its 2012 targets for money-supply and bank lending growth, raising the permitted volume of new credit by 7% from 2011's full-year total of CNY7.47 trillion ($1.18trn).
"Inflation is coming down, but there are still a lot of tailwinds and structural forces behind price rises," says Kevin Lai at Daiwa Capital Markets in Hong Kong, speaking to Reuters and pointing to last year's 22% rise in the China's minimum wage.
But "China is more worried about an economic slowdown now and will continue the policy easing cycle," says Nomura's chief China economist Zhang Zhiwei.
Here in Europe on Thursday, both the UK and Eurozone central banks today voted to keep their interest rates on hold, and both also left their latest "extraordinary measures" on hold.
That enables the Bank of England to buy and hold a total of £275 billion ($420bn) in UK government bonds. The European Central Bank will next month repeat its unlimited offer of 3-year loans, of which commercial banks took €489 billion ($623bn) in December.
"The only reason [today's Italian and Spanish debt sale] has been taken so well is abundant ECB liquidity," reckons strategist Michael Leister at DZ Bank in Frankfurt.
"The market seems very complacent."
Eurozone governments "need to do their utmost" to correct fiscal deficits, said ECB president Mario Draghi at the monthly press conference following today's interest-rate decision, adding that the 50% write-down of privately-held Greek government debt is "unique and exceptional".
The Euro rose on Thursday, but the Pound fell to its lowest level against the Dollar since early October, helping the price to buy gold in Sterling rise to 1-month highs just shy of £1080 per ounce.
Adrian Ash is head of research at BullionVault,