Gold and Silver "Need Dollar to Weaken" as Debt Downgrades Strike Portugal and Egypt

By: Ben_Traynor

The WHOLESALE-MARKET gold price briefly crept back above $1700 per ounce once again on Thursday morning in London, rising faster in Sterling and Euros as they slipped back versus the Dollar on the forex market.

With New York shut for Thanksgiving, Japan's Nikkei index fell to its lowest level since April 2009, but European stock markets bounced hard from this week's 6% drop.

Germany's Dax index remained 10% lower from the start of November, however.

"[The gold price] has been propped up by physical demand," says the commodities team at Standard Bank in London, "as buyers see current prices as particularly lucrative, while silver has been riding on gold's coat tails.

"For any significant move upward in precious metals, we'd need to see the Dollar weaken,"

Thursday lunchtime saw the gold price in Euros trade 2.2% higher for the month-to-date.

Silver prices pushed back above $32 per ounce in London trade.

Following Wednesday's poor auction of new German debt, 10-year German yields meantime traded above UK gilt yields for the first time in 30 months, with 10-year British debt offering new buyers just 2.2% annual return.

Consumer price inflation in the UK slipped from 5.2% per year to 5.0% in October according to official data.

German consumer-price inflation ticked up to 2.9%.

"We do not want Eurobonds, because we do not want German interest rates to rise dramatically," Germany's minister for economic affairs Philipp Rösler in a speech to the Bundestag this morning.

"There is urgency. We will talk about [ECB intervention] today in Strasbourg," said French foreign minister Alain Juppé to France Inter radio this morning, ahead of a meeting between French and Italian prime ministers Nicholas Sarkozy and German chancellor Angela Merkel.

The Irish government meantime asked its political-union partners to share the cost of its €63 billion ($84bn) banking bail-out of late 2008, saying that Ireland has "borne a disproportionate share of protecting the European banking system.

"Where you have reckless borrowing you have reckless lending," said finance minister Michael Noonan.

Last week Noonan expressed "disappointment" that details of Ireland's 2012 budget had been sent to the German Bundestag six weeks before Dublin's parliament will see them, to comply with German laws regarding spending such as Berlin's share of the €85bn bail-out of the Irish state.

Portugal's credit status was today downgraded to "junk" by the Fitch ratings agency, as a general strike over Lisbon's budget cuts closed public services and transport.

Moody's warned on US debt, saying that if Congress reduces the size of budget cuts for 2012, it "could have negative rating implications", while Standard & Poor's Tokyo director said Japan is moving "closer to a downgrade" because its "finances are getting worse and worse every day, every second."

Citing its latest political turmoil, S&P analysts also cut Egypt's debt rating for the second time in five weeks.

Cairo today paid a record 14.4% on 6-month loans totaling $362 million – barely half the sum it had sought from investors.

Crude oil prices meantime pushed higher from a two-week low, but agricultural commodities fell sharply.

Base metals rallied from a 5-week low, led by copper after Barclays Capital raised its 2011 deficit forecast by 10% to 536,000 tonnes, matching the demand-supply gap estimated Tuesday by BofA Merrill Lynch.

The Indonesia Tin Association today asked exporting giant PT Timah to suspend all shipments "to support global prices" reports Bloomberg.

"[This week's] slump in the gold price is mainly US Dollar-driven," says a note from analysts at Commerzbank in Luxembourg.

"Gold calculated in Euros has been able to rise."

"For now," says the latest technical analysis of the Dollar gold price from Scotia Mocatta in New York, "we continue to hold onto our medium-term bullish outlook."

"Immediate upside targets are the 55-day moving average at 1723.82 and the 1753.07 October peak."

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