India, Indonesia, China and Wider Asia Buy Physical Gold and Silver on Dip as Stagflation Threatens

Published in Market Updates  Precious Metals Update  on 11 May 2011

By Mark O’Byrne


 Gold and silver have extended their recovery and may be headed for the fourth day of gains due to the continuing European sovereign debt crisis, Chinese inflation (+5.3%) and the real risk that rising oil and commodity prices are leading to an international inflation spiral and stagflation.

GoldCore
Cross Currency Rates

German inflation data this morning was worse than expected, jumping to 2.7% from 2.3% due to surging energy costs, and in spite of the recent strength in the euro. This has led to the euro falling against all currencies and especially against gold.

In the US, gasoline prices are continuing to rise with US petrol prices looking set to hit $4.00 a gallon. The man in the street is feeling inflation in his pocket contrary to reassurances by Ben Bernanke and the Federal Reserve.

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Generic Gasoline Future – 5 Year (Weekly)

The precious metals are likely to be supported later today when US trade deficit data is expected to be poor with still high oil prices leading to a very large expected deficit of $47.7 billion. This should see the dollar come under pressure and support gold.

The Bank of England inflation report today is expected to point to higher inflation but still no interest rate rise due to declining economic growth.

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UK CPI EU Harmonized YoY – 1989 to Today

Stagflation or low economic growth, high unemployment and rising inflation is a clear and present danger to the UK, EU and US economies and other economies internationally.

This is especially the case in the UK where house prices have begun to fall again and may be set for sharp falls. Internationally, we are seeing significant debt deflation where the value of goods and assets bought with debt are falling (cars, property etc) while the value of finite, essential goods such as food and energy are rising.

Safe haven and inflation hedging diversification into gold is likely to continue as inflation is deepening and there is a distinct whiff of stagflation in the air.

Ultra loose monetary policies and leaving interest rates close to zero percent will lead to further inflation and currency debasement. In order to curb stagflation there will need to be a return to monetary and fiscal discipline and positive real interest rates as was done by Paul Volker in the 1970s.

It is too early to tell whether the recent sell off is over and a further correction is possible however global macroeconomic conditions suggest that gold and silver bull markets are very much intact.

This is especially the case due to continuing Asian demand with gold again being bought on all dips in China, India and the rest of Asia.

Bloomberg reports that Indian demand remains robust according to UBS sales figures. Reuters report that the selloff in gold and silver has seen physical buying of both gold and silver in Asia where dealers report that there was physical buying below $1,500/oz from India, Indonesia and China.

A Hong Kong dealer said that there was “not much scrap selling, as people are still bullish on gold" (see news). 

Gold

Gold is trading at $1,522.64/oz, €1,058.71/oz and £923.71oz.

Silver

Silver is trading at $39.05/oz, €27.15/oz and £23.69/oz.

Platinum Group Metals

Platinum is trading at $1,794oz, palladium at 726/oz and rhodium at $2,075/oz.

News

(Bloomberg) -- UBS Gold Sales to India in 2011 Are 10% Higher Than Year Earlier
UBS AG’s gold sales to India so far this year are more than 10 percent higher than in the same period last year, the bank said today in an e-mailed report.

(Bloomberg) -- AngloGold Chief Says Gold Could Break Through $1,600 in 6 Months
Gold could break through $1,600 an ounce in the next six months, Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., the world’s third-largest producer of the metal, said.

“We think the fundamentals are even more robust than last quarter,” he told reporters on a conference call today.

(Bloomberg) -- Silver Still Heading for $50, Bartels Says: Technical Analysis
Silver, which plunged 27 percent last week, still is poised to climb to the “very important” price of $50 an ounce by the end of the year, according to technical analysis by Bank of America Merrill Lynch.

“You’re still in an uptrend, despite the sharp sell-off” as shown by an intermediate-term trend from the lows on Aug. 24 and Jan. 28, Mary Ann Bartels, the head of U.S. technical and market analysis at Merrill in New York, said yesterday in a telephone interview. “The uptrend was not broken.”

Last week, silver futures plunged the most since at least 1983 after the Comex exchange in New York boosted margin cost by 84 percent. The price rebounded 9.1 percent in the past two days. On April 25, the metal reached $49.845, the highest since the Hunt Brothers tried to corner the market in 1980. In that year, the commodity climbed to a record $50.35.

Futures will face so-called resistance around $45 before topping $50, a “very important number” that “called the end of the bull market in commodities, with the Hunt Brothers getting squeezed out of silver” in 1980, Bartels said.

The metal may rise to $80 in three to five years, she said. In February, Bartels correctly predicted the silver rally in March and April.

Yesterday, silver futures for July delivery rose $1.37, or 3.7 percent, to $38.486 on the Comex. The price jumped 5.2 percent on May 9.

In technical analysis, investors study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

(Bloomberg) -- China’s April Gold Output Jumps 27% to 61.1 Tons, Bureau Says
Gold output in China gained 27 percent in April from a year ago to 61.1 metric tons, according to data released today by the statistics bureau. Silver output increased 2 percent to 930.6 tons, it said.

(Bloomberg) -- China April Base Metals, Precious Metals Production (Table)
The following table lists China’s production of copper, other non-ferrous metals, and precious metals in April, as well as from January to April this year.

The figures are provided by the China Federation of Logistics and Purchasing, which releases monthly data on behalf of the National Bureau of Statistics. Figures are in metric tons. Percentage changes are from the year-earlier period.

  April YoY % Jan.-Apr. YoY %
Copper 454,000 19.2 1,727,000 15.8
Aluminum 1,459,000 7.4 5,514,000 2.7
Lead 398,000 31.8 1,513,000 33.0
Zinc 435,000 2.8 1,705,000 9.2
Tin 14,152 5.2 50,519 13.1
Nickel 20,673 42.0 75,185 30.0
Alumina 2,987,000 18.3 11,195,000 12.4

PRODUCTS

       
Copper 915,000 3.5 3,126,000 13.6
Aluminum 2,431,000 38.4 8,152,000 36.9
PRECIOUS        
Gold 61.08 26.5 199.80 4.5
Silver 930.64 2.0 3,629.75 15.4

(Bloomberg) -- Deutsche Bank Sees Gold Reaching $2,000 as Soros Pares Bets (3)
Gold, which reached a record on May 2, may surge a further 30 percent by January as investors seek to protect themselves from “economic uncertainty,” according to Deutsche Bank AG.

“I’m bullish on gold despite its current levels,” Hal Lehr, Deutsche Bank’s managing director for cross-commodity trading, said in an interview in Buenos Aires. “It could reach $2,000 an ounce in the next eight months.”

Investors including George Soros and John Paulson invested in gold as the metal surged over the past year amid a sovereign debt crisis in Europe, economic turmoil in the U.S. and civil unrest in the Middle East. This month‘s record $1,577.57 an ounce was a sixfold gain since the precious metal’s low in August 1999.

Gold fell 1.6 percent on May 4 after the Wall Street Journal reported that Soros Fund Management LLC sold precious- metal assets. Soros’ fund held shares in the SPDR Gold Trust, the biggest exchange-traded product backed by gold, and the iShares Gold Trust at the end of 2010, U.S. Securities and Exchange Commission filings show.

Gold rose for a third day in New York today as concern about Europe’s debt woes spurred demand for precious metals as a protection of wealth. Standard & Poor’s yesterday downgraded Greece’s credit rating for the fourth time since April 2010.

Gold for June delivery rose $13.10, or 0.9 percent, to $1,516.3 an ounce at 11:05 a.m. on the Comex in New York.

Inflation Hedge
Bullion rose for six consecutive weeks through April 29 as the metal is seen as a hedge against inflation around the globe.

Central banks in China, India and the European Union, among others, have increased interest rates in recent weeks as policymakers seek to control consumer prices with tighter monetary policy.

The U.S. Federal Reserve has kept the benchmark rate between zero percent and 0.25 percent since December 2008 and pledged to purchase $600 billion in Treasuries through June to stimulate the economy. Standard & Poor’s earlier last month revised its debt outlook for the U.S. to negative from stable.

The U.S. Treasury Department projects the government could reach its debt ceiling limit of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July.

Lehr’s so-called cross-commodity team was created by Deutsche last year to handle large investments in commodities without distorting prices with sudden inflows of cash, he said. The team focuses on investment opportunities in a portfolio of commodities, as opposed to looking at individual commodities.

(Reuters) - Gold edges up, silver rises; China data seen to support
Gold firmed a touch and silver rose more than 2 percent on Wednesday, as concerns about China's high inflation and waning economic growth are seen buoying interest in precious metals.

China's inflation in April was stronger than expected, at 5.3 percent on the year, while industrial output was considerably weaker than forecast.

High inflation and lower economic growth in China, the world's second-largest economy, are likely to dampen risk appetite and support interest in gold, though reaction to the data was muted.

Spot gold rose by half a percent to $1,522.96 an ounce by 0615 GMT, building on gains in the past three sessions.

U.S. gold edged up 0.4 percent to $1,523.10.
 "Gold is generally benefiting from the return of confidence from investors," said Darren Heathcote, head of trading at Investec Australia. "They are very happy buying on the dip, as we see the same old problems hanging around."

Growing concern over Greece's fiscal status, dollar weakness and high oil prices continue to fuel nervousness in the financial markets, driving investors to seek safe haven in bullion.

Brent crude was steady near $118 after a jump in China's implied oil demand to the third-highest level on record showed that Beijing's efforts to cool the economy of the second-largest oil consumer are doing little to dent use.

Holdings in the SPDR Gold Trust remained unchanged at a one-year low, but those in the iShares Silver Trust, the world's largest silver-backed exchange-traded fund, extended a rise of 3 percent in the previous session and edged up 0.2 percent to a one-week high of 10,585.99 tonnes by May 10.

Spot silver rose as much as 2.3 percent to $39.34, before easing to $39.19, on course for a fourth straight session of gains. COMEX silver gained nearly 2 percent to $39.22.

Silver prices plunged more than 25 percent last week and gold nearly 5 percent, prompting buying in the physical market in Asia, dealers said.

"We saw buying when gold dipped below $1,500 from China, India and Indonesia, but not much scrap selling, as people are still bullish on gold," said a Hong Kong-based dealer.

Technical analysis echoed bullish sentiment in the physical market, as it indicated that gold could rise to $1,531 in the next 24 hours, said Wang Tao, a Reuters market analyst.

"It's not beyond reason for gold to reach another record high, but the sell-off last week made some investors more cautious," said Heathcote of Investec Australia.

"They are not fully committed as yet and are more willing to take profit after decent gains. So it may take a while to see a new record."

Platinum group metals rose in tandem with gold and silver. Spot platinum edged up 0.3 percent to $1,798.99 an ounce in its fourth day of rise, and spot palladium rose by 0.7 percent to $730.22.


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