The price of both silver and
gold slipped back in London on Tuesday morning,
cutting into yesterday's rapid gains from 4-year and 1-month lows
World stock markets stalled after hitting a series of near and
new all-time highs so far this month.
The British Pound fell hard – supporting the gold price in
Sterling above £910 per ounce – after new data showed a slowdown
in consumer price inflation.
"These stunning upside reversals off fresh lows [in gold and
silver] were somewhat justified," says a note from brokers INTL
FC Stone, "given that both were quite oversold."
Monday's sudden leap in the silver and gold price, which took
only a few minutes, was sparked by a "classic short
squeeze" according to several analysts today.
Bearish bets in gold futures rose last week to a record holding
for speculative traders, breaking 100,000 short contracts – which
profit if prices fall – for the first time on record, according
to US regulatory data.
Monday's dramatic $30 jump in the gold price equaled a 2.2% rise,
but saw silver jump faster – up 3.9% in a matter of minutes.
Across in Asia, "Physical support for the price is currently
huge," says another analyst in a note, "but will not last forever
in our view.
Two weeks after both India's gold-buying festival of
Akshaya Tritiya and tight restrictions on Indian
gold imports, "There is no action in the market," said one Mumbai
bank dealer to Reuters earlier.
"Everybody has stopped consignment imports. [So] premiums are
still on the higher side in the domestic market" at up to $20 per
ounce above the world's benchmark gold price for London
On the production side today, London-listed gold miner
Petropavlovsk Plc – whose shares have lost
two-thirds of their value since New Year, and whose executives
have waived 2013 bonuses to help slash costs – extended the gold
hedging program it began in February.
With output forecast around 21 tonnes for the next 12 months,
Petropavlovsk has now hedged 15 tonnes of that
gold, locking in a price of first $1663 and then $1408 per ounce.
Forward sales by larger gold producers grew throughout the 1990s
bear market. The industry's total "hedge book" reached more than
2,900 tonnes in 2001. Leading analysts GFMS said earlier this
month they don't foresee a big move back towards gold hedging by
miners any time soon.
As a sector, North America's major listed gold mining stocks have
dropped half their value since the price of bullion peaked in
The gold price today stood 28% lower from then, trading at $1375
per ounce by lunchtime in London.
"We have been tempted [by gold mining stocks] for a long time,"
says Robin McDonald of Cazenove's $1.6 billion Multi-Manager
Diversity fund, speaking to TrustNet, and "we saw the fall of 22%
back in April as the right time."
Now adding Blackrock's Gold & General fund
to his holdings, "People have become wholly disillusioned with
the asset class," McDonald says.
"In my experience, when nobody has anything nice to say about an
asset class,from a contrarian standpoint, it's time to buy."
Looking at silver bullion on Monday, Bank of America Corp's
Michael Widmer in London told Bloomberg that "A lot of the
investors who bought silver on a view of Dollar debasement or
inflation picking up massively I think are now disappointed.
"The other point," Widmer added, "is that silver industrial
demand in [this global] mood of subdued economic growth is not
doing particularly well either."
Meantime in the stock market, investment bank Goldman Sachs has
raised its target price for the S&P 500 index – currently at
1665 – to 1750 by year's end, with further advances to 2,100 in
"We forecast dividends will rise by 30% during the next two
years," says Goldmans. "Further expansion [in the price/earnings
ratio, with stocks rising faster than revenues] is possible if
interest rates stay low, growth improves."
After holding US interest rates unchanged between zero and 0.25%
for the 53rd month running at the Federal Reserve's last policy
meeting, central bank chief Ben Bernanke is due to testify
Wednesday to the Joint Economic Committee of the Senate.
"Bernanke is unlikely to hint at a tapering of [quantitative
easing] bond purchases," says today's Commodity Daily from the
analysis team at Standard Bank in London, "which would be a
positive for gold.
"Below $1360 the metal represents a reasonable buying
(c) BullionVault 2012
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