Perfect Precious Metal Storm Continues – Gold Hovers Near New Nominal Highs at $1,534/oz

 Gold has risen to new record nominal highs of $1,534/oz as the dollar continues to be sold in international markets. Gold has eked out smaller gains in other fiat currencies but remains close to record nominal highs in euros, yen and pounds. Silver has risen by more than 1% in all currencies so far today.


Cross Currency Table

The continuation of ultra loose monetary policies by the Federal Reserve, the Bank of Japan and other central banks is leading to concerns that currency debasement will lead to even greater inflation in the coming months.


US Dollar Index – April 1979 – April 2011 (Monthly)

Ultra loose monetary policies and other macroeconomic and geopolitical risks are leading to the perfect precious metal storm. The small and finite physical bullion markets are being confronted with sustained and significant international demand – from retail investors, store of wealth buyers in Asia, hedge funds, pension funds and central banks.


Gold Adjusted for Inflation (US Urban consumers price index) – April 1971 to April 2011

The rebound in gold and silver suggests that there are strong hands in both markets who are continuing to buy on all dips. Prudent investors and savers will do the same. Demand internationally and particularly in China and Asia remains robust due to inflation concerns.

The US dollar index has fallen to 73.05 and is less than 3% above long term support at the record low of 71.802. The dollar looks at risk of falling even further should it fall through that support. This seems likely given the appalling US fiscal position and increasing questions regarding the dollar as reserve currency – both of which remain bullish for gold.

There are again rumours of a run on physical silver due to very significant transfers of silver bullion bars from the registered to the eligible categories in COMEX depositories. The figures suggest that COMEX depositories may come under pressure should investors continue to take delivery or transfer to non COMEX depositories. It is too soon to talk of a COMEX default but as ever a kneejerk rejection of this possibility is reactionary and shortsighted.

As ever, it is important ignore the daily noise and focus on the long term and the fundamentals driving these markets.

The long term charts for gold and silver adjusted for inflation show how gold and silver remain far from record highs adjusted for inflation despite unprecedented monetary policies involving quantitative easing and zero percent interest rates which are leading to what appears to be the early stages of an inflationary spiral.


Silver Adjusted for Inflation – (US Urban consumers price index) – April 1971 to April 2011

Diversification and owning the financial insurance of gold and silver bullion in the safest ways possible remain crucial to protecting, preserving and growing wealth in these times.

Gold

Gold is trading at $1,531.20/oz, €1,033.69/oz and £918.92/oz.

Silver

Silver is trading at $48.19/oz, €32.54/oz and £28.94/oz.

Platinum Group Metals

Platinum is trading at $1,827.00/oz, palladium at $765/oz and rhodium at $2,250/oz.

News

(Bloomberg) — Shanghai Gold Exchange Raises Silver Contract Margin to 16%
The Shanghai Gold Exchange raised the margin on its silver contract to 16 percent from 15 percent, according to a statement from the bourse. The daily price limit fluctuation will remain at 8 percent, it said.

(Bloomberg) — Credit Suisse Forecasts Gold Will Rise to $1,650/Oz in 12 Months
Gold may rise to $1,650 an ounce in 12 months, Credit Suisse Group AG said, raising its estimate from $1,550 an ounce.

Silver, which rallied 46 percent this year, may gain “in the near term,” while higher price and surplus in supply will likely cause the metal to decline in 12 months, Credit Suisse analysts led by Tobias Merath said in a report today. Silver may average $36 an ounce in 12 months, up from the previously forecast $30 an ounce, the bank said.

(Reuters) — PRECIOUS-Gold strikes record as dollar wilts
* Spot gold hits record at $1,534.30
* iShares Silver Trust holdings fall by 1.8 percent
* Coming up: U.S. Q1 GDP preliminary; 1230 GMT

Gold prices hit record highs on Thursday as the dollar’s three-year low against a basket of major currencies attracted non-U.S. investors, after the United States signalled it would retain accommodative monetary policy.

Spot gold XAU= ascended to a lifetime high of $1,534.30 an ounce, breaking records for the second straight session. It traded at $1,530.99 an ounce at 0926 GMT, up from $1,526.40 late in New York on Wednesday. U.S. gold futures GCcv1 also hit an all-time high at $1,535.1 an ounce, and trimmed gains to $1,531.90.

The dollar index .DXY, a measure of the greenback’s strength against a basket of major currencies, dipped to a three-year low after the U.S. Federal Reserve signalled no rush to reverse low interest rates in order to support economic recovery.

"Everything is dollar-related and safe-haven buying," said MKS Finance head of trading Afshin Nabavi.

"The Fed decision was not really a surprise, nothing has changed, but the tone of the statement from Bernanke left the impression that it is going to be a while before any rate hikes will be considered."

The weakening dollar has been a key driver behind gold’s rally in recent weeks, alongside concerns over the ongoing crisis in the Middle East and North Africa region, sovereign debt problems in euro zone and rising inflation worldwide.

PHYSICAL BUYING
Physical gold buying was seen active in Asia while scrap selling was limited, as market participants remained bullish even after gold struck record highs in nine out of the past ten sessions, dealers said.

Spot silver XAG=, which has rocketed more than 50 percent so far this year, rose by 0.5 percent to $48.00 an ounce against $47.76 an ounce late in New York on Wednesday.

U.S. silver futures SIcv1 jumped as high as $48.75 in early trade, following a climb of as much as 7 percent on Wednesday. They were later at $47.98.

As silver prices advanced, holdings in the iShares Silver Trust (SLV), the world’s largest silver-backed exchange-traded fund, dipped 1.8 percent to 11,053.20 by April 27 from the previous session.

Gold and silver may both see more upside, but the risk of a pullback in silver is larger than in gold due to the more speculative nature of the silver market, traders said.

Platinum was at $1,823.74 from $1,819.45 and palladium XPD= was at $766.97 an ounce from$ 763.45

"The market has been pushed higher by prospects of a weaker dollar, inflation concerns and all the debt problems," said Robin Bhar, an analyst at Credit Agricole, adding gold looked set to touch new record highs soon.

Also, investors awaited U.S. first-quarter GDP preliminary figures due at 1230 GMT.

Mark OByrne

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