Gold and silver prices continue to range trade

2012-FEB-16

Yesterday was another quiet day as far as gold and silver prices were concerned, with both metals continuing to range trade. Upside momentum that bulls had at the end of January following the Federal Reserve’s dovish pronouncements has been countered by the eurozone woes. Talk of a Greek default has many traders fearing a rerun of the 2008 liquidity panic. In such an environment, “cash is king”, and more specifically, the US dollar – at least to the extent that it (unlike gold and silver) can be used to meet margin calls.

That said, for all the bearish talk to do with Europe it’s easy to forget that stocks and commodities have had a very good start to this year. Ed Steer links to a chart from finanz.com that shows the performance this year of 40 different assets (commodities, currencies, bonds and stock indexes). Silver and platinum lead the way year-to-date – with gains of 20.7% and 16.9% respectively.

Among commodities, crude oil prices climbed yesterday on the back of news that Iran is looking to cut of its supply of oil to six European countries. This is in retaliation for the recent announcement from the European Union that it will be embargoing Iranian oil from the summer, in order to pressure Tehran into giving up its nuclear programme. Brent crude settled at $118.93 – its highest level since June last year.

The price of Brent in euros broke out to an all-time record high, above the peak reached in July 2008. As ZeroHedge sarcastically notes: “we are sure (this) won't impact the already recessionary environment facing many European nations.” As discussed by energy analyst Gregor Macdonald in a recent Q&A with GoldMoney, high oil prices – a cost-push result of quantitative easing and a result of the fact that it’s becoming increasingly difficult to extract crude oil as cheaply as was done over the last century – are placing serious stagflationary strains on economies.

In other news yesterday, Bloomberg reported that China has reduced its holdings of US Treasuries to its lowest level since June 2010. The Chinese have been diversifying into euro-assets, as both a means of diversifying their huge foreign-exchange reserves and in order to support the EURCNY exchange rate. This is yet another indicator (as if were needed) that all is not well with the dollar.