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Gold
and silver are marginally lower against most currencies after yesterday’s
1% and 3% rise respectively. Gold rose above €1,000/oz again yesterday
and remains just below the €1,000/oz level today despite the euro being
stronger versus other currencies. Silver is back above the important $30/oz
psychological level and €22/oz.
 
Despite
the gains on Wall Street yesterday, Asian equities were weaker overnight
(except for the ASX 200 and NZX 50) and European equities are mixed with
small gains being seen in the BE 500 and the Stoxx 50. The sell off in Asia
is being attributed to the Chinese interest rate rise but concerns about
inflation and the robustness of the global economic recovery may be more
pertinent.
European
sovereign debt yields are flat after yesterday’s rises which were
particularly noticeable in the US where Treasury yields rose sharply, extending
their run of losses for seven straight sessions. The 10 year was up 6 bp to
3.69% and is currently trading at 3.72%.
Commodities
were weaker yesterday but are slightly stronger today. NYMEX crude is up
0.84% to $87.67 and Brent up 0.78% to $100.70 a barrel.
Strong
Physical Demand Leading to Illiquid Conditions
Gold’s
fundamentals remain strong with robust demand internationally; particularly
in Asia where inflation is taking hold. Strong demand can be seen in the
premiums being paid for gold bars in various parts of Asia, especially in
India, Vietnam and China.
Indian
ex-duty premiums for the London AM and PM fix were $6.81 and $4.72
respectively yesterday, showing that Indian buyers are active at these price
levels.
Vietnam
gold markets were open for the first time since last Tuesday. Vietnamese gold
stood at a premium of $40.49 to world gold of $1,351.15.
Reuters
reports that Asian kilo bar premiums remain firm and near 7 year highs with
premiums of $1.50/90 $1.90/3.00 in Singapore and $3.00/$3.00 $3.00/4.00 in
Hong Kong. Japanese demand has also picked up of late and premiums in Tokyo
were $1.50/2.00.
While
Chinese demand is not expected to be at the record breaking levels seen in
late 2010 and January 2011, it is expected to remain robust due to inflation
and negative real interest rates in China (and most of the rest of the
world).
With
the physical gold market remaining very small when compared to the futures
and paper gold market (futures, CFDs etc) there are increasing concerns of
illiquidity due to the scale of demand and lack of supply. Pertinently, the
size of the physical gold and silver bullion markets is tiny compared to the
size of international equity, bond and currency markets. Not to mention the
hard to fathom humongous international derivatives market (see chart
below).
The
gold market remains one of the most liquid markets in the world. The market
is more liquid than many government bond markets in Europe, with daily
trading volumes normally exceeding $100 billion.
Yet,
it is important to make the distinction between the gold market (speculators,
hedgers etc. in the paper gold market) and the bullion market (generally
jewelers and passive investment and store of value buyers).
UBS
wrote about “illiquid conditions” in the gold market this
morning. They did not clarify but they may have meant illiquidity in the
physical gold bullion market.
Gold
trading volumes in the financial markets dwarf the size of actual above
ground refined investment grade product (coins and bars). Investment demand
for coins and bars, along with the gradual move to allocated accounts on
behalf of retail investors, hedge funds and institutions, is leading to a
lack of liquidity in the market.
This
is a recipe for higher prices in the coming months of 2011.
Gold
Gold
is trading at $1,363.00/oz, €999.49/oz and £848.90/oz.
Silver
Silver
is trading at $30.16/oz, €22.12/oz and £18.78/oz.
Platinum
Group Metals
Platinum
is trading at $1,860.00/oz, palladium at $832.50/oz and rhodium at $2,450/oz.
News
(AP)
-- Gold, Silver Rise on Inflation Worry
PRECIOUS
METALS: Gold and silver prices rose after China increased interest rates to
curb inflation and slow economic growth. The two precious metals are
considered hedges against inflation and slow growth.
INFLATION
FEARS: This is the third time China has raised interest rates since October.
Government leaders fear a sharp rise in prices for things like food and fuel
could trigger unrest. Investors are concerned about inflation rising
globally.
MIXED
BAG: Wheat and soybeans rose while corn fell. Energy contracts were
mixed.
(Bloomberg)
-- Gold May Gain as China Rate Increase Stokes Inflation Concerns
Gold may
advance for a third day on speculation China’s interest-rate increase
will fuel concerns about the pace of inflation, boosting demand for the metal
as a store of value.
Gold
for immediate delivery was little changed at $1,363.88 an ounce at 1:57 p.m.
in Singapore. The People’s Bank of China yesterday raised the one-year
lending rate by a quarter point to 6.06 percent and the one-year deposit rate
an equivalent amount to 3 percent.
“The
interest-rate hike does reflect a certain degree of fear over inflationary
pressure, which is a key factor attracting investor interest in gold,”
Yingxi Yu, Singapore- based commodity analyst with Barclays Capital, said by
phone today. “We do believe that there’s further upside for gold
in the next few months.”
China
joined India, Indonesia, Thailand and South Korea in boosting interest rates
this year as Asian policy makers sought to cool the economies leading a
global rebound. A report in China is forecast to show inflation in the
country expanded at the fastest pace in 30 months. World food prices rose to
a record in January and probably will remain elevated, the United Nations
said last week.
Bullion,
which has dropped 4.7 percent since climbing to an all-time high of $1,431.25
on Dec. 7, will rebound on investor demand, Alan Heap, a commodity analyst
with Citigroup Inc., said today in an interview with Bloomberg UTV.
(Bloomberg)
-- Citigroup Is ‘Still Wary’ of Saying That Gold Rally Has
Ended
Citigroup Inc.
said it’s “still wary” of calling gold’s decade-long
rally over, even after figures showed holdings of bullion in exchange-traded
funds fell in January. “We think that there are enough problems out
there (including with the U.S. fiscal/debt situation) to ensure that gold
will remain well bid for some time yet,” the bank said in a report
dated yesterday.
(PTI)
-- Reliance MF launches Gold Savings Fund
Anil Ambani
group firm Reliance Mutual Fund today launched a new Gold Savings Fund, a
first-of -its-kind investment scheme focused on gold, to tap a market that it
expects to become bigger than even equity mutual funds.
The
new fund, which is different from gold ETFs (Exchange Traded Funds) that
require subscribers to have a demat account, will also offer investors the
option to invest as little as Rs 100 per month, the company said here.
The
company said that its Reliance Gold Savings Fund will enable investments in
gold without any locker or demat account -- a first in the country.
Announcing
the launch of the New Fund Offer -- which will be open from February 14-28 --
Reliance Capital Asset Management CEO Sundeep Sikka said: "We expect
this gold investment industry to surpass equity MFs in the next three
years."
Sikka
said the gold investment opportunity in India was not optimally tapped and
the new product will offer a simple, affordable and investor-friendly
solution for investing in gold to the masses.
"Indians
are known for their love for gold. However, with low demat penetration in
India, a lot of investors have not been able to participate in this safe mode
of investment.
"This
product will create a new avenue for pure gold investments for the retail
investor without the need of having a demat account or a locker," he
added.
The
scheme's performance will be benchmarked against the price of physical
gold.
The
company said the new fund will enable investors to avail long-term taxation
benefits from the first year itself, unlike physical gold, wherein long-term
taxation can only be availed after three years.
The
investors will not be charged any entry load on the fund, though there would
be a 2 per cent exit load if redeemed before completion of the first
year.
A part
of Anil Ambani group's financial services arm Reliance Capital, Reliance
Capital Asset Management is the country's largest fund house and manages
assets worth USD 24 billion across mutual funds, pension funds, managed
accounts and hedge funds.
(Wall
Street Journal) -- Silver Streak: Poor Man’s Gold Keeps Surging
Hi-yo Silver,
away!* Old Yeller’s less precious cousin is continuing its recent tear,
with Silver for February delivery surging more than 3% on the Comex to close
at $30.27/oz. Silver has gained about 13% since Jan. 25 and its close above
$30 is considered technically promising. Silver has been up four straight
sessions and seven of the last eight. Meanwhile, the barbarous relic has had
a tougher time of late. Gold for February delivery did manage to gain 1.2% on
the Comex to close at $1363.40, snapping a two-session win streak. As noted
yesterday, silver continues to outperform gold. Over the past 52 weeks, gold
is up an impressive 26.6%. Silver is up an eye-watering 96.2% over that same
period. Precious metals are benefiting from rising inflation fears and
increased concerns about weakening currencies. Gold has gotten too dear for
some, leading to greater interest in so-called “poor man’s
gold.” Silver does have more industrial uses than gold, but it still
has a strong hold on those who are deeply concerned about the future and want
to have a dependable store of value. The U.S. Mint’s silver coin
selling program reflects the rising interest in silver. In January, the Mint
said it sold 6.4 million American Eagle one-ounce silver bullion coins
– about 50% higher than any prior month of sales, according to
Mineweb.
*I
always thought it was Hi-Ho Silver, Away, but the fan sites and other
historical outlets insist that it is Hi-Yo.
(Financial
Times) -- Long-term investors shun Treasuries sale
US Treasury
yields rose sharply on Tuesday, extending their run of losses for seven
straight sessions, after a substantial drop in demand from long-term
investors for the sale of new three-year paper. Treasury dealers were left
holding 62.3 per cent of the $32bn three-year sale, their highest stake since
January 2009, as investors, including foreign central banks, backed away from
buying. Long-term investors bought 27.6 per cent of the auction, their lowest
take since May 2007 and down from the average share of 37 per cent for the
past six sales
Mark O’Byrne
Goldcore
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