Gold & Silver Rally to Unchanged

From Adrian Ash

BullionVault

For the Week as Bangladesh Buys IMF Gold

THE PRICE OF GOLD rallied on Friday after falling 1.5% from Wednesday’s near-record levels on news that the Bangladesh central bank bought 10 tonnes of bullion from the International Monetary Fund.

Some 222 of the 403 tonnes the IMF has been looking to sell since Sept. ’09 have now gone to central banks, according to Bloomberg, led by India’s 200-tonne purchase last Oct.

Tuesday’s gold sale to Bangladesh was done “on the basis of market prices” the IMF says.

By the AM Gold Fix in London, gold was trading at $1248.75 per ounce. Silver was also unchanged for the week, trading at $19.89.

“Whenever these [central-bank] things come out, they tend to be relatively supportive of the gold price,” says Darren Heathcote at Investec Bank in Sydney, Australia.

“It will add more support to what is already a well-supported market.”

“The bulk of emerging economies are overweight US Dollars and underweight gold bullion,” says the latest analysis from ANZ Commodity Research.

“China is a good example, which could consume the global annual supply of gold mining production and still only hold 5% in gold to total foreign reserves.”

Friday’s Asian gold trading was “typically quiet” according to one Hong Kong dealer, but “speculative selling” by Chinese traders was matched by buy-orders on the electronic Globex platform.

“Physical gold was also well bid.”

Driving gold’s recovery from July’s dip, “There has been a reversion to the strong relationship between European [credit default swap] rates, the weakness of the Euro and the price of gold,” say analysts at French bank Natixis in their Commodities Weekly.

Last month, CDS rates on the “PIIGS” government debt (Portugal, Italy, Ireland, Greece and Spain) jumped by 50%, the bank notes. “The price of gold denominated in Euros jumped 8% from €900/oz to €980/oz.”

The gold price in Euros today edged back to that level, down 1.5% from Wednesday’s 10-week high.

Eurozone stock markets fell as reports spread that Germany’s giant Deutsche Bank is a about to ask shareholders for €9 billion ($11.4bn) to meet the new “Basel III” capital requirements.

Analysis from Merrill Lynch says a further 14 Eurozone banks may lack the necessary Tier 1 capital to meet the new rules.

National Bank of Greece already made a “cash call” on its stockholders this week, asking for €2.8bn.

“As markets gradually stabilize, our non-standard measures…will continue to be progressively phased out,” claimed European Central Bank president Jean-Claude Trichet on Friday, speaking to the Financial Times.

“But it is a process which takes time.”

Over in Tokyo, new minutes from the latest Bank of Japan meeting showed, policymakers are increasingly worried that “the appreciation of the Yen might depress growth in exports and corporate profits.”

The Yen rose half-a-cent to the Dollar this morning, but held shy of Wednesday’s new 15-year high.

US Treasury bonds meantime rallied from Thursday’s drop following the weak demand for a new auction of 30-year debt.

Crude oil rose once again, hitting $75.91 per barrel on the WTI contract.

“The price of gold should be reflective of where we are in terms of what’s happened, what’s happening in the global economy, and the expected ongoing demand for gold,” says Patrick Connolly of AWD Chase de Vere, interviewed on MineWeb’s latest podcast.

“But markets and be they equity markets, or be they markets in commodities, do not act rationally – they tend to overshoot at the top end, and actually get over pessimistic at the bottom end.

“Gold is a rally – it’s a sustained bull rally. [But] nobody knows if that stops today, tomorrow in a month, in a year, in five years or 10 years time.”

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.

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