Silver and Gold Looking at Gains on Week

U.S. dollar gold bullion prices held steady around $1,780 an ounce Friday morning London time, having fallen slightly from yesterday's three-month high.

Silver bullion meantime hit its highest level since September, rising to $35.74 per ounce just after London opened.

"Silver has finally broken out of its sideways range," says Russell Browne, technical analyst at bullion bank Scotia Mocatta.

"We have also cleared the previous resistance at $35.16. . .and this level should now start to act as support."

Stocks and commodities were relatively flat going into this weekend's G20 meeting, while government bond prices ticked higher.

Heading into the weekend, gold bullion at Friday lunchtime looked set for a weekly gain of over 3%, with silver looking at a gain of over 6% on last Friday's close.

However "the market is still dull," says gold dealer Pinakin Vyas, assistant vice president at IndusInd Bank in Mumbai, which imports gold bullion.

"Gold prices have moved up $40 [in two days], so people will take time to digest these prices."

"While one would not expect strong physical demand as prices push higher," adds a note from Swiss investment bank UBS, "the overall weakness in physical demand of late has caught our attention. . .in India, volumes have eased this week."

UBS also sees signs of slower activity on the Shanghai Gold Exchange.

"SGE premiums have been hovering at the lower end of the range, reflecting consistently muted demand out of China post-Lunar New Year."

The ongoing Eurozone crisis is expected to dominate discussions at this weekend's meeting of G20 finance ministers and central bank governors in Mexico. Eurozone leaders will be encouraged to increase the size of the so-called "firewall," the European Stability Mechanism bailout fund, before asking for help from the International Monetary Fund, the Financial Times reports.

"IMF resources cannot be a substitute for further steps by the Eurozone to support its currency," UK chancellor George Osborne and Japanese finance minister Jun Azumi wrote in a jointly-authored FT article yesterday.

"The Eurozone must increase the resources of its firewall so the markets can be reassured that it can respond to any eventuality."

"Until Europe starts showing more signs that it's getting its act together," adds Mohamed El-Erian, chief executive of world's largest bond fund Pimco, in the same organ Friday, "the other G20 members must resist [pressure for the IMF to lend]."

Germany remains opposed to increasing the size of the €500 billion ESM, due to become operational in July, by adding to it funds that remain in the existing temporary bailout vehicle the European Financial Stability Facility.

The German Bundestag is due to vote Monday on whether to approve the second Greek bailout deal earlier this week, while Eurozone leaders are set to discuss the ESM's size at a summit next Thursday.

Germany appears to be the only Eurozone nation opposed to an increase after Dutch Finance Minister Jan Kees de Jager expressed his support for such a move on Wednesday.

"We're aware we're pretty isolated," one German source tells newswire Reuters.

"But this has to be a unanimous decision."

Another source told the newswire that domestic politics creates a disincentive for German politicians to support the idea:

"It doesn't help anyone to agree on something that isn't going to go through the Bundestag."

Elsewhere in Europe, the European Commission yesterday revised down its growth forecasts for the Eurozone. It now expects the single currency area as a whole to see its economy shrink 0.3% in 2012, compared to its forecast last autumn for 0.5% growth.

Spain's government has asked the Commission to ease its budget deficit target following the revised forecasts.

Eurozone banks could seek to borrow around €470 billion at next week's 3-Year longer term refinancing operation by the European Central Bank, according to the median estimate of a survey by news agency Bloomberg. This would represent a small decline from the amount borrowed at December's LTRO, as well as a dig drop from earlier estimates that €1 trillion.

ECB President Mario Draghi has stressed that there is "no stigma" in borrowing at the LTRO, and that "the facilities are there to be used."

"It is really monetary expectations that are making the investment rationale for gold," reckons Bayram Dincer, analysts at LGT Capital Management.

"Conditional on those expectations, it makes sense, but the potential for disappointment, and price consolidation, is a given."

Across the Atlantic, U.S. Mint sales of American Eagle gold bullion coins so far this month are down 87% on January's total by weight, according to U.S. Mint data.

So far this year, 4.4 tonnes of the gold coins—the most popular gold investment coin produced by the U.S. Mint—have been sold.

By comparison, the U.S. Mint sold over seven tonnes in the first two months of 2011.

Ben Traynor
BullionVault

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

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