Gold Trades in Tight Range as Silver Outperforms

By: GoldCore

Gold fell $5.40 in US trading yesterday to close at $1,222.70/oz and fell to €999.00/oz as the euro strengthened against the dollar. Gold has traded in a very tight range between $1,220/oz and $1,225/oz in Asian and early European trading. Silver rose yesterday and has is outperforming gold again today.

Gold is currently trading at $1,222/oz and in euro, GBP, CHF, and JPY terms, trading at €997/oz, £827/oz, CHF 1,394/oz, JPY 111,635/oz respectively.

Financial markets appear unusually subdued with Asian markets nearly all up very marginally and European markets showing marginal gains as well. Currency markets are also subdued with little or no movement so far today.

Sovereign debt issues and Europe's economic health remain concerns as was seen after Moody's lowered its rating on Greece's debt to "junk" status which led to the late sell off on Wall Street. There is speculation that Spain might have to tap the EUR750 billion euro rescue fund set up to help eurozone countries and continuing concerns about contagion. US bonds and the dollar also came under pressure yesterday but it remains to be seen whether this is the start of a sell off as has been seen in stock markets since April. The economic ramifications of the huge oil spill in the Gulf of Mexico are still being assessed but it will certainly not help overall US economic growth or the US public finances.

The vicious combination of poor and deteriorating public finances, anaemic economic growth and sovereign debt and currency concerns should lead to continuing safe haven demand for gold.

Silver

Silver is currently trading at $18.42/oz, €15.02/oz and £12.45/oz.

Platinum Group Metals

Platinum is trading at $1,557/oz and palladium is currently trading at $460/oz. While rhodium is at $2,425/oz.

News

Some of the world's biggest banks and security companies are building vaults to store gold bars and coins worth tens of billions of dollars, cashing in on resurgent demand and record prices.

The growing interest in gold among investors worried about the global economy and Europe's sovereign debt crisis has led to a shortage of long-term storage space.

Bankers said that vaulting has become highly profitable. Rising bullion prices translate into higher storage fees, which are usually calculated as a percentage of the gold price. Gold prices this week rose to a nominal record of $1,251.20 a troy ounce, up 14.5 per cent since January. Yesterday, gold bullion traded at $1,226/oz.

"Physical gold is being sought more than ever and that is causing all sorts of strains," said Peter Hambro, chairman of Petropavlovsk, the gold miner.
Much of the increased demand comes from exchange-traded funds. The world's largest, the SPDR Gold Trust, was yesterday holding a record 42m ounces of gold worth $51.5bn at current prices.

While some banks said they had space, others said their vaults were nearly full. Several said they were building or planning new vaults. JPMorgan recently opened a new gold vault in Singapore and Via Mat International, the Swiss-based security company, has just opened a silver safe warehouse in west London. Deutsche Bank is mulling a new vault, bankers said.

Frank Ziegler, head of precious metals at BayernLB in Germany, said its vault was full. "We are discussing increasing the size. We are just at the planning phase," he said. Roger Jones, global head of commodities at Barclays Capital in London, said the bank was "actively looking at the precious metal vaulting business".

While the traditional image of a bank vault is a basement deep underground, modern vaults are purpose-built warehouses, above ground and surrounded by high security. The trend to build new vaults reverses the dismantling in the early 1990s of the elaborate - and expensive - infrastructure of vaults put in place during the last gold boom of the late 1970s.

Philip Klapwijk of GFMS, the precious metals consultancy, said the move to build vaults reflected the "new nature" of the gold market. Investors hoping to benefit from a rising gold price and who are driving demand want long term storage. Jewellery makers deposit gold for short periods (FT).

Deutsche Bank sees gold prices averaging $1,215 an ounce this year. In the third quarter it expects to see the metal at $1,200 an ounce, rising to $1,400/oz in the final quarter of 2010. In 2011, it sees gold at $1,450 an ounce.

The bank expects silver to average $18.73 an ounce this year, rising to $22.00/oz in 2011. It sees platinum at $1,652/oz and palladium at $470/oz in 2010 as a whole, rising to $1,750/oz and $525/oz respectively in 2011 (Reuters).

Japan's central bank on Tuesday unveiled details of a new $33 billion low-interest lending scheme intended to fuel economic growth and fight deflation.
The plan accompanied the Bank of Japan's decision to keep its key interest rate near zero.

As widely expected, the eight-member policy board voted unanimously to leave the overnight call rate target at 0.1 percent. The bank has not touched the rate since December 2008 (AP).

The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all US home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by US taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts (Bloomberg).

This update can be found on the GoldCore blog here.

Mark O'Byrne
Director

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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