Precious Metals Records as ETF Buys 'Noticeable by Absence'

Gold hit its second new record high on the trot at the London Gold Fix on Thursday morning, hitting $1441.25 per ounce for US investors as the dollar held flat on the forex market, and US crude oil rose.

New York's stock markets opened the day 0.5% higher. Silver bullion jumped to fresh 31-year highs above $37.85 per ounce.

The ratio of gold to silver prices "is now convincingly through the 1998 weekly low" notes the London dealing team at Japanese conglomerate Mitsui.

"Technically there is plenty of room for the ratio to continue lower" they reckon, as silver prices rise faster than gold, cutting the ratio to barely 38 times at Thursday morning's London fixes, down from a peak near 85 immediately after the 2008 collapse of Lehman Brothers.

Trading on Egypt's re-launched stock exchange was meantime halted today for the second day running after another sharp drop at the opening bell.

Between 15 and 25 people were reported killed in Syria, where the ruling dynasty's security forces fired on protesters in Deraa on Wednesday.

Forces loyal to Colonel Gaddafi continued to attack rebel-held towns in Libya, despite the fifth night of joint-United Nation airstrikes against him.

In gold bullion, "[exchange-traded fund] investors have been noticeable by their absence, which suggests there has been some rotation out of gold," says the latest Metal Matters from bullion bank Scotia Mocatta.

Combined holdings across the trust-fund gold ETFs which Scotia tracks have shrunk by 5% since peaking at 2,130 tonnes in late Dec.

In gold, "What we may have seen is a period where profit-taking has outpaced new buying," says the bank's latest analysis.

"Silver prices [in contrast] are exceptionally strong, so strong that we feel there must be some aggressive short covering as well as fresh buying."

On the currency markets Thursday morning, the euro rallied back to unchanged after Belgium's prime minister said the European Union was "obviously ready to step in and help" if asked by Portugal - now trying to form a new government following the rejection of premier Socrates austerity budget.

That capped the gold price in euros below EUR32,750 per kilo, some 1.8% higher for the week so far.

Ten-year Portuguese bond yields rose Thursday towards new post-euro highs of 7.7%. Bail-out aid from the Euro Stability Fund being finalized today in Brussels would likely cost 6.0%. Greece last week renegotiated its bail-out costs down to 5.0% per year.

RBS analysts reckon a Portugal rescue is now "pretty inevitable" and will require EUR80 billion in funds. Two un-named EU sources quoted by Bloomberg put the figure at EUR70bn ($99bn).

"There's more confidence around Spain," says analyst Silvia Verde at brokers Inverseguros in Madrid, speaking after the Moody's rating agency today downgraded 30 smaller Spanish banks once again on bad debt concerns.

"The market mood is better than it was a few months ago."

European stock markets on average rose sharply on Thursday, while German and UK government bonds held flat and Brent crude ticked down through $115 per barrel.

The gold price in sterling extended Wednesday's gains, trading above lb890 per ounce for the first time since New Year.

"High and sustained oil prices are negative for base metals prices but supportive of gold," says the latest Precious Metals Monthly produced by London's VM Group consultancy for ABN Amro.

Warning that "there is little correlation to draw upon to offer an accurate estimate by how much [precious or base] metals could move per $1/barrel increase in oil," VM's analysts says "the key difference between the run in the oil price now compared to past price spikes is that the global economy is presently fragile, having emerged from the worst recession since the 1930s."

Speaking about US monetary policy on Wednesday, "We have done our job [and] are certainly at risk of doing too much now," said Dallas Federal Reserve Bank president Richard Fisher.

"The word we gave was that the [quantitative easing] program would end in June... There is abundant liquidity in the machine we know as the United States..."

Fisher said he can now see "extraordinary speculative activity" in the US economy.

Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications - London's top publisher of financial advice for private investors - he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.

About the Author
Adrian Ash

Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications – London's top publisher of financial advice for private investors – he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.

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