Gold Steals Silver's Limelight at $20/oz.


"Silver not only follows rallies in gold, but usually outperforms."

THE PRICE OF GOLD in wholesale dealing held in a tight range around last week's close as New York reopened after the Labor Day holiday on Tuesday, trading at $1,247/oz. while European stock markets fell and government bonds rose.

Silver fell almost 2% from Monday's breach of $2/oz.—a 30-month high previously hit in Nov. 1980.

"Each time a rise in gold hits the headlines, it steals the limelight from silver," says Ashraf Laidi at spread-betting firm CMC Markets, quoted today in the Financial Times. "Silver has not only followed rallies in gold, but usually outperformed—as can be seen in a fall in the gold:silver ratio—the amount of gold that can be purchased with one ounce of silver."

Yesterday saw the gold:silver ratio fall toward a 12-month low beneath 63 on the London Fixes. Its four-decade average stands at 53 ounces of silver per ounce of gold.

The euro meantime fell 1.5¢ from 3-week highs to the dollar early on Tuesday after The Wall Street Journal accused last month's "banking stress tests" of excluding "a significant amount" of government-bond exposure amid the recent Greek deficit crisis.

European finance ministers meeting in Brussels last night agreed "on the need for credible sanctions" against governments that breach the union's debt and deficit limits, EU commissioner Olli Rehn told reporters.

But easing tensions over Greece's deficit have led to "a slight slackening of the dynamism" to fix the system, Germany's Wolfgang Schäuble warned.

"Despite concerns over the global economy, precious metals have also come under attack," Walter de Wet, chief commodities analyst at Standard Bank, said this morning. "[But] while precious metals might be on the back foot for now, lingering uncertainty means the outlook for these metals still looks promising."

"Even though there's some liquidation in the gold ETF, everybody is still bullish," Reuters quotes Ronald Leung of Lee Cheong Gold Dealers in Hong Kong, after New York's SPDR Gold Trust reported a 0.4% drop in its physical holdings. "There's so much uncertainty in the economy and the [Hindu] festive season is on and we expect to see buying at the lower end. I think the next target is the all-time high."

Overall last week, total global gold investment rose by more than 2.1%, according to data compiled by London's VM Group consultancy, as a sharp rise in futures and options positions outweighed a slight fall in physically backed ETF trusts.

In the U.S. Comex gold futures market, "Gross longs in the large speculators' position have gone up by more than 1.5 Moz. [46 tons equivalent] in the past three weeks," says VM's weekly report for ABN Amro. "On a rolling three-week basis, that's the largest advance [in speculative gold futures betting] since the same period ending 22 September 2009. . .when the gold price was just $1,014/oz."

Silver investment worldwide last week showed a 6.3% rise on VM's analysis of ETF and futures positions.

Meanwhile in the stock market on Tuesday, European shares fell nearly 1% after Germany reported an unexpected drop in factory orders for July.

Ahead of Thursday's Bank of England policy meeting, the British pound fell closer to last week's 1-month lows, buoying the gold price in sterling above £810/oz.

Australian investors looking to buy gold today saw the price hold near AUD$1,370/oz.—some 11% below the record price of Jan. and May—after the central bank held its lending rate at 4.50%, the highest rate paid on a developed-world currency.

The Bank of Japan also held its key lending rate unchanged on Tuesday, sticking at 0.1% for the 20th month running after weighing a "moderate recovery" against the "possibility that inflation will rise more than expected" due to emerging-economy demand.

Refraining from any new Forex-market or money supply intervention, the BoJ repeated the same vow as U.S. and UK central banks to "take policy actions in a timely and appropriate manner if judged necessary."

Adrian Ash

P.S. As for the People's Bank buying gold, Beijing's reserve managers are very much the junior player in China's gold market. In the 30 months between Jan. 2008 and June 2010 alone, according to WGC data, private households bought more gold (1057 tons) than the central bank reports in its entire hoard (1054 tons).


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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—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events—and must be verified elsewhere—should you choose to act on it.

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