By From Adrian Ash
“Pressured by ETF Selling”; “Miner Hedging” Rumored in Tight London Silver Market
WHOLESALE PRICES for large gold and silver bars both fell hard in London and early New York trading on Thursday, extending this month’s 4% and 10% drops as world stock markets fell and the US Dollar rose.
The Euro held above $1.3450, but the British Pound gave back all of this week’s rise to two-month highs. Crude oil prices dropped 2.3% to $88.30 per barrel.
US data on Wednesday showed new housing construction falling to a near-50 year low, but jobless benefit-claims today pointed the other way, posting their sharpest decline since Feb. 2010 and extending a 3-month improvement.
“Precious metals came off overnight on speculation that Chinese growth results would presage further tightening of monetary policy,” reckons James Zhang at Standard Bank.
The world’s fastest-growing economy today posted GDP growth of 10.3% for 2010.
Ahead of next month’s Chinese New Year – a period of heavy gold-buying and gift-giving – China’s biggest provincial economy, Guangdong, today matched Beijing’s recent hike of one-fifth in minimum wage levels.
“Reports that some financial institutions have started to exit their gold positions have been circulating this week,” says French bank and London bullion dealer Natixis in its latest commodity analysis.
Physically-backed ETF trust funds shrank almost 1% this week on Natixis’ data – the “sharpest weekly drop since we started keeping records in 2008.
“Net long non-commercial holdings [ie, the speculative position in US gold futures] dropped 12% last week…close to the lowest levels since July 2009.”
“Gold buying from the physical side is supporting the market for the time being,” said Ronald Leung at Lee Cheong Gold Dealers in Hong Kong earlier on Thursday.
“But the unwinding of ETF positions is pressuring prices.”
The Dollar gold price today fell through $1350 per ounce for the first time in two months.
Unchanged for 3 days running, the gold price in Sterling also slumped, down 1.8% and falling below £850 an ounce for the first time late Nov.
Eurozone savers wanting to buy gold today saw the price fall through €1000 per ounce (€32,150 per kilo) – also a new 8-week low.
Over in silver, “Talk about [mining] producers hedging could be an explanation of the huge borrowing we saw [Weds],” says Swiss refinery MKS’s daily dealing-desk note.
Fearing further price falls after a 20-year bear market, gold mining companies borrowed and sold two full years’ of global output between them by June 2001.
Silver prices this month broke fresh 30-year highs above $31 per ounce.
Dropping almost 12% since then, prices to buy silver for immediate delivery have this week risen above future prices, a rare situation known as “backwardation” that indicates a bottleneck in physical supply.
“A squeeze [of short-selling traders] failed to materialize,” says one London trader of Wednesday’s action, something that “the whole market [was] talking about” in Thursday’s Asian trade, according to a Hong Kong dealer.
“This [physical shortage] is definitely not the case in Asia,” he adds, however. “So what is all these fuss about?”
Over in the government debt market, major-economy bond ticked lower – nudging interest rates higher – but Portugal’s open-market borrowing costs slipped back below the 7% at which Lisbon has said its debt are “unsustainable”.
The European Central Bank currently holds around 20% of Portugal’s outstanding debt.
Irish government bonds also ticked higher on Thursday, despite prime minister Brian Cowen calling an election for March 11th after a cabinet reshuffle led coalition partners – who had supported the “austerity budget” needed to secure €67.5 billion in EU bail-out funds – to quit.
Adrian Ash
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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 mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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