Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Rally as Scrap Sales Dry Up

Commodities / Gold and Silver 2010 Jul 09, 2010 - 07:56 AM GMT

By: Adrian_Ash

Commodities

SPOT-MARKET PRICES for wholesale gold crept back above $1200 an ounce in London on Friday, recovering half of this week's 2.2% drop as world stock markets pushed higher again.

The US Dollar and Japanese Yen both rose against the Euro and British Pound, while German bunds and UK gilts rose on weak inflation data, nudging yields lower.


Commodity markets held flat, with US crude oil contracts above $75 per barrel.

Silver prices rose above $18 an ounce, adding 0.7% from last Friday's finish.
 
"The appetite for gold arises partly from the paltry, uncertain returns from more conventional investments," says today's Economist magazine in a special briefing.

"Monetary policy has been keeping official interest rates, and thus the opportunity cost of holding gold, low...The yields on the government bonds investors regard as safest are also thin."

Noting that world stock markets "are weighed down" by poor economic data and that buying property "requires boldness" after the financial crisis, "The looseness of monetary policy has made many investors fear the eventual resurgence of inflation," The Economist adds.

"If you fear strong inflation, one should buy gold irrespective of the current price," says Dr. Martin Hüfner, chief economist at €3.5 billion asset manager Assenagon, writing today for the Frankfurt Stock Exchange.

"One should buy physical gold...not gold mining shares or gold certificates. Don't put your whole portfolio in gold, because it pays no interest. But it is your umbrella if it rains."

This week the People's Bank of China said it had no plans to replace US Treasury bonds with gold bullion as its "main channel" to reserves management.

"Although the Chinese may be happy to hold their reserves in Western fiat money," notes the latest Commodities Weekly from French bank and London bullion dealer Natixis, "other Asian central banks may remain more inclined to continue diversifying their holdings into alternative assets such as gold."
 
Asian central banks currently hold an average of 3.5% of their foreign-currency reserves in gold bullion. The global average is 15.3%, led by the United States' allocation to gold of more than two-thirds.

"The efficient frontier of a typical developing or emerging-market central bank can be enhanced by adding gold," says a new research report from Natalie Dempster at the World Gold Council, analyzing the "smoothing" effect of gold in a large, well-diversified portfolio.

"How much gold depends on a central bank's risk appetite: an allocation to gold of between 2.4% and 8.5% is optimal for a bank with around a 5% risk tolerance. At a risk tolerance of 8.3%, the allocation to gold increases to 29%."

The WGC also recommends "a tactical overlay to its strategic allocation in order to protect it from a particular set of downside risks it deems likely."

Researchers at the Bank of Korea this week called a Greek debt default "inevitable". The central bank last raised its gold allocation to 0.2% of reserves at the start of 2008. It surprised currency traders today by raising its key interest rate to 2.25%, the first change in 16 months.

The South Korean Won rose on the news, as did Seoul's Kospi stock index, which ended the day 1.4% higher.

China's domestic stock-market jumped more than 2% to recover one-eighth of the last 3 months' near-20% drop.

Back in the spot gold market, meantime, "Now that gold has fallen by almost $50," says Walter de Wet at Standard Bank, "the trend [in wholesale physical dealing] has reversed.

"With gold below $1200...gold selling and scrap sales have dried up. We believe that investment demand for gold will remain strong."

Estimating "strong seasonality" in jewelry demand, especially from India, as early as August or September, "We still see gold heading towards $1300 in, or just before, Q4:10," de Wet concludes.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in