247Bull.com Editor: The next catalyst for gold will likely be inflation. Inflation in the US is now “baked into the cake”. Even Keynes understood the relationship between government money printing and inflation, and explicitly pointed out: “The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance”.
Gold ticked higher but silver prices stalled Friday morning, as a rise in Asian stock markets failed to carry over into European or pre-opening trade in US equities.
The Euro currency rose sharply through $1.30, knocking the gold price in Euros back below €1220 per ounce, virtually unchanged for the week.
Sterling gold prices slipped to £1050, some 2.3% below Tuesday’s new 4-month high.
For Dollar investors, Friday morning’s London Gold Fix came in at $1593.25 per ounce – more than $6 above yesterday afternoon’s level and the highest AM fixing in more than two weeks.
Silver achieved only a 2-day high at its London Fix on Friday, set at $28.91 per ounce.
“Given what we have seen in Libor [the interbank lending rate], we’d be foolish to assume that other benchmarks aren’t venues that deserve review,” said Bart Chilton of US regulator the Commodity Futures Trading Commission in an email Thursday, clarifying reports that the London Fix is under investigation by US derivatives regulators.
The CFTC has not begun an investigation, but is “discussing internally” whether the global benchmark for valuing and pricing gold – a snapshot taken at 10:30am and 3pm for gold, and at midday for silver – may be open to “manipulation”, along with “energy, swaps…and the whole litany of ‘bors,” as Chilton said in testimony more than 2 weeks ago.
Back in today’s markets, “Gold prices are not being supported by the current confluence of events,” says French investment bank and bullion dealer Natixis in its latest weekly comment.
“[The] stronger Dollar predicated upon fiscal retrenchment suggests further downward pressure upon gold prices, while any move by the Fed to scale back QE3 in response to a pick-up in growth…also represents a downside risk for gold prices.”
Consumer price inflation in the US rose to 2.0% annually in Feb, new data showed today, with gasoline prices rising at the fastest pace since 2009.
“Inflation is still contained, but there’s a fear that it’s starting to rebound,” Bloomberg quotes Hideo Shimomura, chief fund investor for $63 billion in assets at Mitsubishi UFJ in Tokyo.
“Treasury yields at 2.0% show people expect improvement in the economy.”
Money markets are now pricing in 2.6% inflation, the newswire adds, the highest level of inflation expectations since September.
“The American economic revival, diverging monetary policy expectations and the unfinished Euro area crisis…all point in the same direction,” says a note from SocGen analyst Sebastien Galy – “a stronger Dollar.”
“Gold’s fate will largely ride on what direction US equity markets will take,” counters Thursday night’s note from INTL FCStone, saying that “only a sizable correction in US equities will likely prompt funds to get back into gold.”
Noting that silver investment has risen while ETF trust fund holdings in gold fell, “We find this divergence surprising given that silver investment demand tends to be closely linked to sentiment towards gold,” says Anne-Laure Tremblay, precious metals strategist at BNP Paribas.
Trimming her silver price forecast from a 2013 average of more than $34 per ounce to $31.35, “A reversal in trend is likely in the next two months if our forecast for a subdued gold price performance [also] proves correct.”
Adrian Ash | BullionVault