Gold & silver "trapped" in tight range, volatility near half-decade lows

The gold price eased $5 per ounce from a two-day high in London trade Thursday morning, holding above $1,676 as Asian stock markets closed lower but Europe held flat.

The Euro currency held onto a half-cent rise as the European Central Bank kept its key lending rate at a record low of 0.75% for the 15th month in a row.

Crude oil rose with other commodities, but silver bullion remained unchanged for the week so far at $31.80 per ounce.

Daily swings in the silver price haven't been as small as this week since spring 2007. Volatility in the U.S. dollar gold price has only been lower than yesterday on 15 days since mid-2005.

"The story in the precious metals market," says Commerzbank's commodities team, "continues to be the explosion in the price of platinum" — now 13% higher since the start of the year.

Palladium, which is also used primarily in the auto industry, is similarly "in a very bullish trend," they add, while "Gold and silver remain range-bound."

Technical analyst Russell Browne at bullion bank Scotia Mocatta calls the gold price "trapped" for the last month.

While the market may be "building a base" from which to rise higher, "We do not expect any speculative buying until the market can break $1,695," he adds, "a level which has held since mid-December."

Commodity analysts at the World Bank forecast a 4% drop in the gold price by end-December, with a further 3% fall to $1,550 over 2014.

"Most risks are on the downside," says the World Bank's latest Commodity Market Outlook, "as the pace of global recovery improves, including further easing of financial tensions in Europe." The recent "high gold prices have [also] attracted considerable investment in the gold mining industry," the report adds, "not only to replace aging existing mines but also to develop new mines."

China's gold mining output rose in 2012 for the 6th year, Shanghai Securities News said today, confirming its world #1 position with a record 403 tonnes.

Together with China's gold imports through Hong Kong of 524 tonnes (net of exports), that figure takes China's domestic demand for last year to at least 926 tonnes.

Imports to India – the world's #1 consumer nation until 2012, but with no domestic mine output – fell one-third by value over the first 9 months of last year, perhaps taking full-year shipments below 650 tonnes.

"[The gold] market is slow these days," Reuters quotes a Mumbai bank dealer, "as overall sentiments are not so good because of [central bank] comments."

After gold import duties were hiked to 6% last month, the Reserve Bank of India on Wednesday proposed strict controls on import quantities, perhaps forcing wholesalers to re-export certain quantities and use recycled domestic metal instead, to try and cut the country's large trade deficit.

"If they come up with quota system," says the dealer quoted by Reuters, "then market will become very ugly."

The Rupee slipped back Thursday against the Dollar, but remained 5% above last month's multi-decade lows.

Sterling meantime whipped violently as first Mark Carney – who takes over as governor at the Bank of England this summer – spoke before lawmakers in London, and then the central bank held UK interest rates at 0.5% for the 48th month in succession.

"[Economic] risks are weighted to the downside..[but] inflation is likely to rise and may remain above the 2% target for the next two years," the Bank said as it also maintained its quantitative easing at £375 billion ($590bn).

It will now start recycling the cash from maturing government bonds, it said, into new purchases of public debt.

"Returns to QE have declined, particularly in the US, as the scale of programme has increased," said Mark Carney, currently head at the Bank of Canada, to the Treasury Select Committee this morning.

But "unquestionably" the UK economy's "considerable slack...will be a situation that merits considerable monetary policy stimulus," when he takes over from Sir Mervyn King in June.

The gold price for UK savers today touched a 10-week high above £1073 per ounce.

It has risen more than 5-fold since King moved from deputy to governor in June 2003. Consumer price inflation has averaged 2.7% per year, against the Bank's official target of 2.0%.

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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