Markets Flat Following ECB LTRO, "Next Target for Silver" is September High

By: Ben_Traynor

WHOLESALE MARKET gold bullion prices hovered around $1785 an ounce Wednesday morning London time, while stocks and commodities were also broadly flat following the European Central Bank's latest attempt to boost the liquidity held by the continent's banks.

Silver bullion meantime hit $37.36 per ounce, its highest level since last September.

"The next target [for silver] is $39.78, the September 2011 high," says the latest technical analysis from gold bullion dealing bank Scotia Mocatta.

Wednesday's London Fix price for silver was $37.23 per ounce – a 10.8% monthly gain over the January 31 fixing. By this measure, the Dollar silver price has seen its biggest calendar month percentage gain since October. Sterling and Euro silver prices have both recorded their biggest calendar month gains since last July.

Gold meantime touched $1790 per ounce for the first time since November during Wednesday's Asian trade. By Wednesday lunchtime, spot gold in Dollars was headed for a monthly gain of 2.8%.

A total of 800 European banks borrowed €529.53 billion from the ECB's three year longer term refinancing operation, the ECB announced Wednesday. This compares with 523 banks who borrowed €489.19 billion at the last 3-Year LTRO in December.

In addition to the increased amount of borrowing, analysts estimate that a greater proportion will be so-called new liquidity – as opposed to existing debt that has been rolled over.

"The number of banks participating...signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy," reckons Laurent Fransolet, London-based head of fixed income strategy at Barclays Capital.

"So the impact may be bigger than with the first one."

However, "there is a big difference between stopping the rot and starting a recovery," says this morning's note from Standard bank currency analysts Steve Barrow and Jeremy Stevens.

"It is always possible that Eurozone politicians shy away from the tough fiscal and institutional decisions that will be required to end this crisis, if they feel that the ECB's cash is doing the job for them."

The Euro fell slightly against the Dollar immediately following the LTRO, though it recovered much of the loss by lunchtime. European stock markets barely moved, although yields on 10-Year Portuguese government bonds did start rising immediately following the news, hitting their highest level in nearly three weeks at 13.6%.

The amount borrowed by banks at the LTRO "was pretty much in line with expectations," says Tom Kendall, precious metals analyst at Credit Suisse.

"Neither gold nor [the] Euro...have done very much on the back of it after an initial reaction, as it's [already] in the price."

In London meantime, the International Swaps and Derivatives Association agreed Tuesday to adjudicate on whether or not the ongoing restructuring of privately-held Greek debt constitutes a credit event – and thus whether it should trigger payments on credit default swaps. 

ISDA's Determinations Committee will meet tomorrow. If it agrees a credit event has occurred, it could trigger $3.2 billion of CDS payments, the Wall Street Journal reports. 

Ireland's government announced Tuesday that it will hold a referendum on the so-called fiscal compact agreed last December by European Union members – with the exception of Britain and the Czech Republic.

Irish prime minister Enda Kenny is expected to sign the treaty when European leaders meet later this week, before trying to persuade Irish voters to approve it. Even if Ireland votes 'No', however, the treaty could still be adopted as it only needs the approval of 12 countries.

Here in the UK, seasonally adjusted M4 – the broadest measure of UK money supply – rose 1.6% in January, though the year-on-year change was a fall of 1.8%. M4 excluding intermediate 'other financial corporations' – which the bank uses to gauge the effectiveness of its quantitative easing program – saw a 1.9% s.a. monthly gain, and a 2.9% gain year-on-year.

UK mortgage approvals meantime rose to their highest level since December 2009 last month.
"It is evident that mortgage approvals are currently being lifted by first-time buyers rushing to complete before the stamp duty concession ends in March," says Howard Archer, economist at consultancy HIS Global Insight in London.

 "Even so, mortgage approvals remain low compared to long-term norms."

India's economy grew at an annual rate of 6.1% in the last three months of 2011 – the slowest rate since the fourth quarter of 2008 – according to official data published Wednesday.

"India's economy was battered from all angles through the second half of 2011," says Glenn Levine, economist at Moody's Analytics, an arm of the ratings agency.

"[It was hit by] rising interest rates, falling stock prices, a plunging Rupee and weaker global demand."

India has long been the world's biggest gold consumer. In Q4, however, its gold bullion consumption was less than that of China – 173 tonnes compared to 191 tonnes, according to the latest World Gold Council data.

Sanction-hit Iran meantime will accept gold bullion as well as Dollars as payment from trading partners, the country's official Islamic Republic News Agency reports.

"This is a confirmation of gold's status as a store of value, a universal currency," says Michael Cuggino, president and portfolio manager  at San Francisco-based asset managers Permanent Portfolio, which manages around $15 billion in assets.

Earlier this month, traders reported that Iran was paying for wheat with gold.

By Ben Traynor
BullionVault.com

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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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