Silver Surged 3% - ECB At 1%, Dovish Fed Comments and 'Helicopter Ben' Testimony

Published in Market Update  Precious Metals Update  on 7 June 2012

By Stephen Flood


Today's AM fix was USD 1,620.75, EUR 1,288.66, and GBP 1,046.25 per ounce.
Yesterday’s AM fix was USD 1,633.25, EUR 1,305.45, and GBP 1,057.33 per ounce.

Silver is trading at $29.51/oz, €23.55/oz and £19.04/oz. Platinum is trading at $1,470.00/oz, palladium at $626.00/oz and rhodium at $1,200/oz.

Gold rose 1% yesterday prior to giving up those gains and rising just $1.20 in New York and closed at $1,619.60/oz.  Gold has been trading sideways in Asia and continues in Europe hovering above $1,620/oz. 


Cross Currency Table – (Bloomberg)

The ECB decision yesterday and ‘Helicopter Bens’ testimony today will likely indicate that ultra loose monetary policies and negative real interest rates are here to stay – indeed they may even intensify.  

Gold has fallen slightly today but remains near a one month high. 

Market participants will be watching Bernanke’s testimony before Congress later today, a day after Janet Yellen and Dennis Lockart, both indicated yesterday they were prepared to make monetary policies even looser in yet another attempt to boost the very shaky US economic recovery.

Ben Bernanke testifies at 1400 GMT before the US Congress and most investors expect some form of easing by the Fed to be announced.  Adding fuel to the fire for risk in general, European policy makers are quickly trying to solve Spain’s debt crisis even though the country has not asked for any outside aid.

In Europe the focus is on the upcoming Greek elections (June 17th) and also a meeting taking place the following two days with European policymakers to ascertain whether Greece still desires to be part of the eurozone’s single currency.

Central bank gold demand remains robust as central banks continue to diversify out of the euro and the dollar. Further central bank demand is confirmed in the news this morning that Kazakhstan plans to raise the share of gold in its international reserves from 12% to 15%.

So announced central bank Deputy Chairman Bisengaly Tadzhiyakov to reporters today in the capital, Astana.

“We’ve already signed contracts for 22 tons,” Tadzhiyakov said. Bloomberg report that immediate-delivery gold was little changed at $1.620.41 an ounce at 10:50 a.m. in Moscow, valuing 22 metric tons of gold at about $1.2 billion. “The bank is ready to buy when suppliers are ready to sell,” Tadzhiyakov said.

Kazakhstan said yesterday it will cut its holdings in the euro by a sixth.

It was reported in the Reuters Global Gold Forum that the central bank buys all the gold produced in Kazakhstan and owned 98.19T at the end of April, according to the IMF's most recent international finance statistics report.

Meanwhile, supply issues remain and South African gold production continues to plummet.

South African gold production fell 12.8% in April from a year earlier, Juan -Pierre Terblanche, a spokesman for Statistics South Africa, told Bloomberg.

Silver’s surged 3% yesterday in dollars and by similar amounts in most other currencies.


XAG/USD Exchange Rate – (Bloomberg)

The surge was impressive as it came against a backdrop of negative economic  data.

The supply demand dynamics in the silver market remain conducive to higher prices in the coming months.

Silver investment demand remains robust as seen in the silver holdings of the iShares Silver Trust, the biggest exchange-traded product in the metal. It jumped 30.17 metric tons yesterday to 9,699.25 tons, according to figures on the company’s website reported by Bloomberg.

Silver remains undervalued from a historical perspective and from the all important inflation adjusted perspective. This means that reaching the record nominal high of $50/oz remains a possibility in 2012.

The Bloomberg composite inflation adjusted silver chart below shows how silver remains undervalued. The Bloomberg chart has an inflation rate that is even lower than the CPI inflation adjusted chart which shows that silver was at $140/oz in 1980.

Longer term the inflation adjusted 1980 high of $140/oz remains realistic – especially given the increasing use of silver in various industrial application and  silver’s increasing investment demand – especially in Asia where silver is now the cheaper alternative to gold.


Composite Silver Inflation Adjusted Spot Price – (Bloomberg)

While silver is volatile it is important to remember that it is less volatile than many stocks and even less volatile than some stock market indices. 

Silver’s advantage in these uncertain monetary and systemic times is that it is no one else’s liability and hence it cannot go bankrupt – unlike every corporation, bank and government in the world.

Silver will always have a value on a chart and will not go to zero or disappear.

Hence, the importance of owning silver as part of a diversified precious metal holdings and part of an overall diversified investment and savings portfolio.

OTHER NEWS
(Bloomberg) -- Silver Leads Rally as Gold Rises on Dollar: Commodities at Close 
The Standard & Poor’s GSCI gauge of 24 commodities jumped 2 percent to 596.67 at 5:18 p.m. in London. The UBS Bloomberg CMCI index of 26 raw materials was up 2 percent at 1,442.435.

PRECIOUS METALS
Gold rose to a four-week high on speculation that the Federal Reserve will take new measures to stimulate growth and as the European Central Bank said it will extend its offerings of three-month unlimited cash into 2013.

Gold futures for August delivery gained 1.2 percent to $1,636.20 an ounce on the Comex in New York, after touching $1,642.40, the highest since May 7.

Before today, the metal gained 3.2 percent this year, after 11 consecutive annual increases.

Silver futures for July delivery jumped 4.1 percent to $29.58 an ounce in New York, heading for the biggest gain for a most-active contract since Feb. 28.

NATURAL GAS
Natural gas futures fluctuated in New York as hot weather forecast for the eastern U.S. next week will be followed by below-normal temperatures, crimping demand for the fuel from electricity generators to run air conditioners.

Natural gas for July delivery rose 2.1 cents, or 0.9 percent, to $2.467 per million British thermal units on the New York Mercantile Exchange. The futures, down 17 percent this year, have gained 30 percent since dropping to a 10-year intraday low of $1.902 on April 19.

U.K. natural gas rose as lower-than-normal temperatures boosted demand for the fuel and imports from Norway and the Netherlands dropped. Power rallied.

Within-day gas rose to as much as 56.6 pence a therm and was at 56 pence. That’s equivalent to $8.66 per million British thermal units and compares with $2.47 per million Btu for month- ahead U.S. gas. The price for today at 4:30 p.m. on Friday was 54.75 pence a therm. 

CRUDE OIL
Oil rose for a third day on speculation that monetary policy makers will act to spur economic growth, boosting fuel demand.

Oil for July delivery surged $1.40, or 1.7 percent, to $85.69 a barrel on the New York Mercantile Exchange. Futures traded at $86.03 a barrel before release of the inventory report at 10:30 a.m. Prices have risen 3 percent so far this week from an eight-month low on June 1.

Brent oil for July settlement gained $2.19, or 2.2 percent, to $101.03 on the London-based ICE Futures Europe exchange.

LIVESTOCK
Hog futures rose to a seven-week high on speculation that U.S. producers are withholding offers to meatpackers in anticipation of higher prices. Cattle also gained.

Hog futures for July settlement rose 0.5 percent to 92.05 cents a pound on the Chicago Mercantile Exchange. Earlier, the price reached 92.7 cents, the highest for a most-active contract since April 13. Last week, the commodity jumped 5.8 percent, the most since March 2011.

Cattle futures for August delivery rose 0.4 percent to $1.19625 a pound, heading for the fourth gain in five sessions.

Feeder-cattle futures for August settlement fell 0.1 percent to $1.5905 a pound.

GRAINS, OILSEEDS
Corn rose to the highest in more than a week and soybeans gained on signs that dry, warm weather will hamper developing crops in the U.S., the world’s biggest producer.

Corn futures for July delivery rose 2 percent to $5.7875 a bushel on the Chicago Board of Trade, after touching $5.8425, the highest since May 25. Prices tumbled 12 percent in May partly on government forecasts for U.S. farmers to plant the most acres since 1937 with a record national yield.

Futures for December delivery, after the harvest, gained 1.5 percent to $5.1525.

Soybean futures for November delivery, the contract with the most open interest, jumped 1.6 percent to $12.975 a bushel in Chicago, heading for the biggest advance since May 15 for a most-active contract. The oilseed for delivery in July gained 2.4 percent to $13.82.

Wheat jumped for the second time in three days on speculation that demand will rebound after prices reached the lowest in almost three weeks.

Wheat futures for July delivery rose 1.7 percent to $6.235 a bushel on the Chicago Board of Trade. On June 1, the price reached $6.11, the lowest since May 16 and down 15 percent from an eight-month high of $7.22 on May 21. Before today, the price plunged 21 percent in the past year.

BASE METALS
Copper rose in New York, rebounding from the longest slump since February, on speculation that policy makers will take steps to revive economic growth as Europe’s debt crisis threatens commodity demand.

Copper futures for July delivery climbed 2.1 percent to $3.3575 a pound on the Comex in New York. Prices dropped 5 percent over the previous five sessions in the longest slide since Feb. 17.

On the London Metal Exchange, copper for delivery in three months rose 1 percent to $7,432 a metric ton ($3.37 a pound). The bourse was closed for the prior two sessions during a public holiday.

Lead and tin also rose in London, while nickel fell. Zinc and aluminum were little changed.

SOFT COMMODITIES
Raw-sugar futures rose the most in 11 weeks on speculation that wet weather will damage crops and delay shipments in Brazil, the world’s top producer and exporter. Cocoa and coffee also advanced.

Raw sugar for July delivery surged 4.3 percent to 19.88 cents a pound on ICE Futures U.S. in New York. A close at that price would mark the biggest gain for a most-active contract since March 15. Earlier, the price touched 19.92 cents, the highest since May 22.

Cocoa futures for July delivery jumped 1.9 percent to $2,205 a metric ton. Earlier, the commodity reached $2,220, the highest since May 22.

Arabica-coffee futures for July delivery rose 1 percent to $1.5775 a pound. A close at that price would mark the biggest gain since May 17.

In London futures trading, refined sugar, cocoa and robusta coffee gained on NYSE Liffe.

OIL PRODUCTS
Gasoline rose after European Central Bank President Mario Draghi said officials stand ready to act as the euro region’s growth outlook worsens.

Gasoline for July delivery rose 3.6 cents, or 1.3 percent, to $2.7207 a gallon on the New York Mercantile Exchange, the third straight increase.

Regular gasoline at the pump, averaged nationwide, fell 0.5 cent to $3.565 a gallon yesterday, according to AAA. It was the lowest price since Feb. 19.

July-delivery heating oil rose 4.9 cents, or 1.9 percent, to $2.6826 a gallon on the exchange.

Gasoil futures advanced for a second day as Brent crude recovered from last week’s losses to trade at more than $100 a barrel.

Neste Oil Oyj halted a diesel unit at its Porvoo refinery in Finland after an “unexpected incident.” Sonatrach Group in Algeria plans to halt its Skikda plant later this month.

Gasoline barges for immediate loading in Amsterdam- Rotterdam-Antwerp traded at $955 to $971 a metric ton, according to a survey of brokers and traders monitoring the Argus Bulletin Board. That compares with June 1 deals from $936 to $975. The U.K. had public holidays on June 4 and June 5.

(Bloomberg) -- Belarusian May Gold and Currency Reserves Grew to $8.06 Billion
Belarus’s gold and foreign-currency reserves increased by $81.1 million last month to $8.06 billion as of June 1, the central bank said in an e-mailed statement today, citing calculations of the holdings to International Monetary Fund standards.

(Bloomberg) -- South African Foreign-Currency Reserves Drop as Gold Falls
South African gross gold and foreign currency reserves fell for a third month in May as the price of bullion dropped and the dollar strengthened, reducing the value of reserves held in euros and pounds.

Gross reserves declined 2.1 percent from a month earlier to $48.9 billion, the Pretoria-based Reserve Bank said on its website today. The median forecast in a Bloomberg survey of six economists was $48.8 billion. Net reserves declined to $47.7 billion from $48.8 billion.

“The decrease in the gross reserves was primarily due to significant valuation adjustments associated with the decline in the market price of gold and the substantial appreciation of the U.S. dollar against other major currencies,” the central bank said in the statement.

Gold reserves, which account for about 13 percent of gross holdings at the central bank, dropped $390 million to $6.3 billion. The price of gold slumped 6.3 percent in May, reaching as low as $1,526.97 an ounce.

The rand traded at 8.2986 per dollar at 9:01 a.m. in Johannesburg, compared with 8.3096 before the data was released. The yield on the 13.5 percent bond due 2015 fell one basis points, or 0.01 percentage point, to 6.25 percent.

(Bloomberg) -- Economist Gartman Adds to Gold Position, Buying Bullion in Yen
Economist Dennis Gartman is adding to his gold position, buying the metal priced in yen, he said today in his daily Gartman Letter.


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