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Gold & Silver Not Crowded Trades as J.P.Morgan Materially Cuts Short Silver Position Says Source

Commodities / Gold and Silver 2010 Dec 14, 2010 - 09:20 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF GOLD rose to 1-week highs above $1400 per ounce overnight in Asia on Tuesday, rising as the Dollar fell on the forex market, before slipping back after new data showed much stronger-than-expected US retail sales and factory-gate inflation for November.

Crude oil slipped from $88.70 per barrel, and base metals also dipped.


Wholesale silver investment bars dropped 50 cents from $30 per ounce after extending Monday's rally – and gaining 4.3% from last week's finish – as the Financial Times reported that market-making brokerage and bank J.P.Morgan has “materially” reduced its bets on lower prices, citing “a person familiar with the matter.”

“It is absolutely incorrect to say or imply that the Nymex, CFTC or any other exchange or regulator has instructed or asked us to reduce our position,” the FT quotes a spokesman for J.P.Morgan, which acquired Bear Stearns' large precious metals dealing-book when it bought the failed investment bank in March 2008.

J.P.Morgan has been linked by internet authors with the unspecified “fraudulent efforts” to control silver prices alleged in Oct. by Commodity Futures Trading Commission commissioner Bart Chilton.

On the other side of the trade, the US gold futures market “has seen its net speculative position as a percent of [all contracts open] remain largely flat at 30.32%,” notes Standard Bank's Walter de Wet of the latest CFTC data.

In contrast with crude oil and copper markets, “This level is below the average level seen over the past year and points to a market that is not crowded yet. The same goes for Comex silver, where the net spec positions [bullish minus bearish bets held by non-industry players] have actually declined as a percent of OI to 18.35%, down from 20% [the previous] week.”

"Gold is following up momentum with the selling of Dollars towards the year end," said a Singapore bullion trader to Reuters earlier.

"[Gold prices] are resuming the uptrend, and there are not many down days to be expected."
Recording its 10th ever London Gold Fix above $1400 an ounce this morning, the gold price fell vs. the Euro as the single currency jumped 1.8% against the greenback on the forex market.

The gold price in British Pounds rose 0.8% after new data showed UK consumer price inflation rising to 3.3% annually last month, led by a record Oct-to-Nov. jump in each of food, clothing and furniture prices.

Nov. marked the 11th month running that inflation has stood 1% or more above the Bank of England's official 2.0% target. Charged only with defending consumer-price stability, the UK central bank has now kept its key interest rate at a record low of 0.5% for 20 months running.

Latest UK house-price data from the Royal Institute of Chartered Surveyors meantime says that “lack of demand from buyers continues to stifle the market, and new buyer enquiries fell for the sixth consecutive month” in Nov.

“Only if [Beijing] really raised interest rates would it put real pressure on the gold market," said Ronald Leung of Lee Cheong Gold Dealers in Hong Kong to Reuters this morning, after a report in the China Securities Journal said the central bank will again apply this year's ceiling of 7.5 trillion Yuan (US$1.12trn) to new bank lending in 2011.

Actual bank lending is likely to hit CNY7.8trn in 2010, the Economic Observer quotes a senior source today. The People's Bank has raised interest rates only once this year, but hiked bank-deposit reserve requirements six times – and applied price caps on a range of items – as consumer-price inflation has risen to 28-month highs above 5% per year.

“Today it was gold’s turn to shine,” says a Hong Kong dealer after “base metals rallied strongly in Asia” on Monday.

Gold dealing was “one-way traffic” this morning, he says.

Asian stock markets were muted, meantime, and European equities held flat on Tuesday morning, 
US and UK government bonds continued to tick lower in price, but German Bunds rose after an auction of new Spanish debt met with good demand, but only at sharply higher interest rates for the investors.

Spanish bonds fell hard in the open-market, driving 10-year yields to near-2010 records above 5.6%.

Buying some €2.7bn of Eurozone government debt in Nov., the European Central Bank now needs extra capital – perhaps twice its current €5.8bn, according to press reports – to cover possible losses on the €130bn of higher-risk assets it now holds.

Also today, the ECB published legal advice it's taken regarding political moves in European Union-member Hungary which “could be seen as the Government trying to influence” Budapest's central-bank governor “in the performance of his tasks.

“Any such influence would be contrary” to EU treaties, says the advice.

In Budapest yesterday, the Parliament approved state confiscation of privately-held mandatory pension funds by a majority of 250 to 58.

“The legislation is a de factor rollback of pension reforms in the late 90s that established a funded pension pillar alongside the state's pay-as-you-go system,” says Hungary's RealDeal finance site.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

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.


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