-- Posted Monday, 20 May 2013 | | Disqus

WHOLESALE PRICESforgold and silver rallied from a fresh plunge in early London dealing on Monday,rising to stand unchanged and 2.3% lower respectively from the end of lastweek's trade by lunchtime.

Asian stock markets closed sharply higher, even as the Japanese Yen reversedFriday's drop to new 4-year lows against the US Dollar.

Commodities ticked lower as did major government bonds. Silver prices todaytouched the lowest level in 44 months, dropping within 25¢ of $20 per ounce.

This morning London's silver Fix came in at $21.66, very nearly one-third belowthe start of 2013.

Initially extending Friday's late drop to touch $1340 per ounce for only thesecond time since January 2011, gold rallied from new 5-week lows for Euro andBritish Pound investors.

"Investors are very bearish at the moment," said Bruce Ikemizu atStandard Bank's Tokyo office to Reuters this morning.

"The stock market and the Dollar are quite strong. It's a natural move forinvestors to switch their money from commodities to equities."

Versus private households buying gold coins and small bars, most notably inIndia and China, "Financial investors hold the upper hand," says anote from Denmark's Saxo Bank, "[with] hedge funds now holding the biggestever bet on falling prices."

New data released Friday showed the netlong speculative position in US gold derivatives heldby money managers and other non-industry players as a group falling to newfour-and-a-half-year lows in the week-ending last Tuesday.

Down to the equivalent of 214 tonnes, the difference between bullish bets andbearish bets on New York gold futures and options has shrunk by 55% since thestart of 2013, driven by a doubling in the number of "short"contracts.

The amount of bullion held to back shares in exchange-traded gold trust fundsshrank again Friday, taking the combined total of the GLD and IAU products down16 tonnes for the week at 1,230 tonnes altogether.

The two largest US gold E.T.F.s have now shed 22% of their holdings since NewYear.

Despite silver E.T.F. holdings remaining much steadier, the silver price"is trekking a similar path to gold," reckons analyst Yang Xuejie atGalaxy Futures Co. in China – a division of a state-owned brokerage group.

More particularly, "Investment demand is slowly falling and there aredoubts about industrial demand, which is the primary driver."

Some 60% of annual offtake in the silver market goes to industrial uses, ratherthan jewelry and other store-of-value forms like coin or bar. That compares toless than 15% for gold.

Solar panel demand, which has helped plug some of the gap left by the collapsein photographic demand for silver over the last decade, flat-linedin 2012 according to analysis from French investment bankand bullion dealer Natixis.

Back in gold bullion,"We have some left over consignment stocks," an Indian importer toldReuters this morning, pointing to the Reserve Bank's latest import restrictionsto the world's largest gold-consumer market.

Local premiums over and above the world's benchmark London pricing doubled andmore in response to the Indian centralbank's new rules, imposed a week ago.

"For the time being we are catering to jewelers," the importerspeaking to Reuters added today. But despite this tightness in domesticsupplies, Indian gold prices continued to fall on Monday, dropping 1.5% in linewith international prices.

The drop in Indian gold prices is hurtingthe gold-backed consumer loans sector, IndiaToday reports, with non-performing loans – raised with the pledge of goldjewelry as collateral – tripling over the last year to 1.5% of the largestgold-loans book, built by Muthoot Finance.

Shares in competitor Manappuram Finance, India's first stockmarket-traded goldloan company, have dropped by 40% in the last month, says the paper.

"Gold, I think, is deep in our psyche and totake people away from gold, greater steps are needed,"says State Bank of India chairman Pratip Chaudhuri, quoted Saturday by ZeeNews.

Commenting on the central bank's campaign to deter gold demand – first byimposing those new import restructions, but also by asking commercial banks topromote coins and bars less aggressively, in a bid to reduce India's tradedeficit – "I don't know whether it would lead to reduction inconsumption," Chaudhuri says.

"In India there is such a fascination for gold. What stops people fromgoing to the jewelry shops and banks?"

Adrian Ash

 

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

 

(c) BullionVault 2013

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

-- Posted Monday, 20 May 2013 | Digg This Article | Source: GoldSeek.com

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