By From Adrian Ash
As Flight from Exchange-Control & Deflation Risks Squash Short Sellers
THE PRICE OF PHYSICAL GOLD continued to surge in London on Tuesday, taking out fresh all-time highs for US, Canadian and UK investors as European stock markets reversed yesterday’s drop and the Euro rallied from a 1-week low on the currency market.
Commodity markets added up to 1.5%, while German Bunds rose but US and UK debt slipped, nudging the 10-year gilt yield back above 3.0%.
Silver prices meantime broke above $28 per ounce, gaining nearly 7% vs. the Dollar from Monday’s start.
Priced in British Pounds, the silver price hit its highest level since 24 Jan. 1980 at £17.65.
“Incredible momentum,” says one London dealer of the precious metals market.
“Silver’s rally has been phenomenal,” says another.
“Our Hong Kong office reports that many large speculative shorts out of China have been forced to stop out over the past several days,” says a third.
“The short position started to build in July,” says a bullion bank analyst, noting the four-fold rise in to early October’s peak. Since then, the short position in Comex silver futures has shrunk by almost one fifth.
Silver prices have risen by 25%.
“Selling is absent” in the physical gold market, says Standard Bank today, despite last weekend’s finish to the Indian Diwali festival and “despite the temptation of high prices, with participants expecting further upside still to come.”
The gold price in Euros today rose further above €1000 per ounce, coming within 3% of June’s all-time Euro peak at €1051.
UK investors wanting to buy gold today saw the best offer rise above £878 per ounce in each of BullionVault’s live online markets for New York, London and secure Zurich-vaulted bullion.
For gold investment, “The upward trend remains in place, and as it beds down, QE2 will probably boost demand,” says the latest Precious Metals Weekly for ABN Amro Bank from London’s VM consultancy.
“The need for safe-havens has never been greater,” agrees market-making bullion bank Scotia Mocatta in its November Metals Matters.
“Given the fact governments are [so highly active] in monetary and fiscal policy, as well as looking to change the ‘rule books’ on such things as naked short-selling and large speculative position, it is not surprising that gold is being bought as a means of holding something of value outside the clutches of any one government.
“Even if deflation in mature economies does underpin their currencies, we feel the uncertainty associated with deflation will mean gold will remain sought after, especially as its buying power increases in a deflationary environment.”
Monday saw bond-insurance group Ambac Financial file for Chapter 11 bankruptcy protection in the United States, after it failed to raise much-need capital, leaving the former “monoline” giant with $1.6 billion in debt but only $0.4bn in assets.
Ambac’s stock more than halved to 20¢ in after-hours trading last night.
It peaked above $95 in spring 2007.
“The loss of confidence hitting Ireland will have major implications for the way investors perceive Irish sovereign and private sector risks,” says Jacques Cailloux, chief European economist at RBS Bank. “The contagion effects to other peripheral countries will start playing out again.
“We look for the ECB to be forced to intervene more aggressively in coming weeks,” he adds, after the European Central Bank said it made its first return to buying Euro-government bonds last week, with a €711 million purchase.
Ahead of this week’s G20 summit of developed and emerging-economy politicians in London, “We feel that [the US Fed’s decision to launch QEII] did not recognize its responsibility to stabilize global markets or the impact of excessive liquidity on emerging markets,” said China’s vice-minister for finance, Zhu Guangyao, on Monday.
“Russia will insist…that such actions are taken with preliminary consultations with other members of the global economy,” said Arkady Dvorkovich, a Kremlin official.
“The Fed’s mandate, my mandate, is to grow our economy,” countered US president Barack Obama this morning on his trip to India. “That’s good for the world as a whole.
“The worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth.”
Adrian Ash
Gold price chart, no delay | Buy gold online at live prices
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.
(c) BullionVault 2010
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