Gold & Silver Bull Markets

From Adrian Ash

BullionVault

“Can Withstand Liquidation”, “Prolonged” by Euro Crisis, US Inflationary Policy

THE PRICE OF GOLD touched a near-record $1419 per ounce in Asian trade early on Monday, easing back as the Euro slipped vs. the Dollar and world stock markets stalled after last week’s sharp gains.

Government bond prices rose, nudging yields lower. Crude oil slipped from new two-year highs above $89 per barrel.

“The metals ran out of steam fairly quickly as profit-takers from the Far East emerged in number,” says one dealer in a note.

But “Latest data confirms [that] gold is best positioned to withstand any substantial long liquidation,” says commodity analyst Walter de Wet at Standard Bank, noting that – as a proportion of all gold futures contracts now open on the US Comex exchange – the net balance of speculative bets is below its two-year average at 30.4%, with silver’s net speculative position at just 20% of open interest.

“Looking at historical levels,” says de Wet, “gold above 35% and silver closer to 28% [would] look crowded.”

Priced in the Euro, gold investment bars today came within 0.5% of last Wednesday’s new record high at €34,400 per kilo.

Gold priced in British Pounds broke fresh all-time highs on Monday morning above £900 per ounce.

The silver price in Dollars meantime came within 4¢ of $30 an ounce, the highest level since Texan oil barons the Hunt Brothers were forced to unwind their attempted “corner” in the silver market three decades ago.

Priced in Pounds Sterling today, the price of silver bullion briefly rose above £19 per ounce – the highest level since its all-time peak of mid-Jan. 1980.

“This fear of inflation I think is way overstated…We’re not printing money. The money supply is not changing in any significant way,” said US Federal Reserve chairman Ben Bernanke to Sunday’s 60 Minutes show on CBS.

“Disinflation is underway, with deflation a real eventual possibility,” writes Bernanke’s former colleague at Princeton University, Nobel-winner Paul Krugman, in his New York Times’ blog, illustrating his point with charts of US wages and consumer prices excluding housing, food and energy costs.

“The good news is that the European Central Bank will probably start a massive additional round of quantitative easing to fight the break-up of the Eurozone,” says Reuters columnist James Saft, writing about the Irish and broader Eurozone debt crisis.

“The bad news is that they will, as ever, only choose the right policy…after exhausting all of the alternatives.”

Senior Eurozone policy-makers Jean-Claude Juncker and Giulio Tremonti today called for the launch of joint debt agency, urging the creation of “E-bonds” to finance sovereign spending by all 16-member states, so as to prove the “irreversibility of the Euro.

“The European Council could move as early as this month to create such an agency,” write the pair – also Luxembourg premier and Italian finance minister respectively – “with a mandate gradually to reach an amount of outstanding paper equivalent to 40% of the gross domestic product of the European Union and of each member state.”

But “Without fundamental changes in the European framework, it’s not possible,” replies German finance minister Wolfgang schäuble, also speaking to the FT.

Ahead of Tuesday’s proposed budget from the Dublin government – expected to be rejected by both the opposition and Fianni Fail’s coalition partners – Irish debt prices rose in early European trade today, after clearing-house LCH Clearnet cut from 45% to 30% the deposit required from traders holding the bonds.

Prices slipped back, however, to nudge 10-year Irish yields back up to 8.20% by lunchtime.

“As long as [Europe is] being seen as reactive, we’re going to have a slow-motion wreck going on,” says bond-manager Pimco’s chief executive, Mohamed El-Erian.

Ireland is “likely” to leave the Euro, he told CNBC, “unless we see more than just liquidity support, unless we see something that deals with the balance sheets.”

“While lingering concerns over Eurozone debt issues maintains safe-haven buying, the potential for a longer-than-expected period of expansionary monetary policy in the US and Europe is prolonging the precious metals bull market,” says a new report on gold and silver investment from Morgan Stanley analysts, quoted today by Dow Jones Newswire.

Adrian Ash

BullionVault

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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.

(c) BullionVault 2010

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