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Gold & Silver Slump from New All-Time Highs on Spctre of Rising Interest Rates

Commodities / Gold and Silver 2011 Apr 01, 2011 - 08:22 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF physical gold bullion slumped 1.4% lunchtime Friday in London, falling back from its highest-ever monthly close as the Dollar jumped on news of stronger-than-expected US jobs hiring in March.

Silver prices also fell – losing nearly 2% – after also ending March at an all-time record high monthly close of $37.87 per ounce, more than $2 above the previous month-end high of Feb. 1980.


"From a big picture perspective, there is no sign that the current trend [in silver] is about to reverse," says Russell Browne, strategist at bullion-bank Scotia Mocatta.

But "[although] some way off...the great risk to the metals remains the spectre of positive real interest rates," says one London dealer in a note.

The US economy has added 837,000 jobs in the last 6 months on the official data. Total employment remains 2.4 million down from when the Federal Reserve moved to zero rates and quantitative easing at the start of 2009.

"What we have to see now is how gold fares in an environment of rising interest rates, where holding a non-yielding asset goes against you," reckons RBS commodity strategist Nick Moore, speaking to Reuters.

Gold closed March higher "for the second month in a row," notes Browne at Scotia, with "January's correction to $1308 [now] viewed as a necessary retracement before making the next leg higher through December's $1430."

The price of spot gold for immediate delivery ended March at a new monthly-close record of $1439 per ounce at the London Fix.

Thursday saw the Spot Gold Price in Dollars complete its 9th quarterly gain in succession – the longest run since 1979 according to Bloomberg data.

Priced in the Euro, says BullionVault analysis, gold last night completed its 24th consecutive quarter of year-on-year gains, an unbroken run starting in June 2005.

Gold investment prices to private citizens in Japan rose today to a new 28-year high, reports Reuters, hitting ¥4065 per gram when the sales tax of 5% is included according to Tanaka Kikinzoku Kogyo, Japan's largest gold retailer.

Gold bullion stored to back the world's largest single gold trust fund, in contrast, actually shrank between Jan. and April, posting its largest quarterly decline since launching in Nov. 2004.

Worries over the Libyan conflict, plus fresh Eurozone debt concerns, "encouraged gold safe-haven buying" on the last day of the month, says Mark Pervan at ANZ Bank.

The BBC said today that 7 civilians were killed in a Nato-coalition airstrike on pro-Gaddafi forces.

After the government resigned last week, Portuguese president Anibal Cavaco Silva today called an election for June 5th, saying that "the next government faces an unprecedented economic and financial crisis."

Ireland's call for its banks to raise another €24 billion – to be funded out of state aid and EU bail-outs – "is the scale of the legacy that we have now inherited," said Dublin's new prime minister Enda Kenny.

"I can only hope this is the final scale of it."

Shares in Bank of Ireland jumped when they resumed trading after a temporary suspension amid the stress test results. Rising to a 1-week high, however, BoI remained 98% below its peak of Feb. 2007.

The European Central Bank meantime "decided to suspend" credit-rating requirements on Irish government bonds when used by commercial banks to raise credit from the Frankfurt lender.

It's now 12 months since the ECB made a U-turn on such "special treatment", allowing Greek government bonds to be used as collateral despite sliding below the benchmark credit rating requirement.

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 2011

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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