Market Report: PMs stronger

Precious metal prices rose strongly from the low points of last Friday, with silver performing particularly well.

Silver is now up 3% on the year, though gold still has a little way to go. This performance has puzzled some market traders, who expected the Chinese holiday week (which ended yesterday – Thursday) to lead to a drop-off in demand. Furthermore, gold went to a discount in India, leading to some market commentators concluding that the Indian market is sated. However, it appears that India has entered Shradh, a two-week period considered to be an inauspicious time to buy gold, property or any big purchases. The decline in Chinese and Indian demand is therefore a temporary market phenomenon, which should pass.

Gold priced in the currencies of the major Asian gold centres of influence is rarely considered in western markets. The chart below, of gold indexed in Indian rupees, Turkish lira, Chinese yuan and Saudi Riyals addresses this neglect and shows gold from an Asian perspective. It is taken from the week the dollar price of gold peaked in September 2011.

Indians are paying 13% less today, the Chinese and Saudis nearly 40% less, while the Turks, whose currency has performed poorly over the last two years, find gold is up 3%. It is hardly any wonder therefore that physical demand at these prices persists. As a side-issue, it is interesting to see how the riyal moves in lockstep with the yuan, implying Saudi Arabia would be better off with a petro-yuan instead of petro-dollars.

Meanwhile in this week's trading, prices for gold and silver followed the established rhythm of a sharp rise late on Friday; but instead of drifting lower over the course of this week, gold more or less held its ground. Silver was more volatile, rising 12% from last Friday's intraday low to $16.13 on Tuesday and Wednesday, before slipping to close at $15.70 yesterday. Both metals traded higher in early European trade this morning, with gold $1147 and silver $15.90

The speculative short positions on Comex have reduced somewhat, as one would expect, given the firmer tone since August. The next two charts are of the short positions in the Managed Money category (hedge funds) on Comex of gold and silver respectively.

The shorts have roughly halved in one month, but are still high compared with historic averages. While there is still some bear closing ahead, the futures market will have to begin to rely on genuine buying if prices are to progress from here, which would probably need a convincing break above technical resistance at $1160 for gold, and for support at $15.60 for silver to hold.

This weekend the IMF and the World Bank hold their annual meetings in Lima. This might be the last such meeting before the BRICS bank, set up by the major emerging nations, announces the rival to the IMF's SDR. The likelihood that it will differ from the SDR by involving gold cannot be ruled out. If this becomes a more general topic of discussion, the effect on gold and silver prices should be positive.

Next week

Monday

US: Columbus Day holiday.

Tuesday

Japan: Consumer Confidence.
UK: Retail Price Index, CPI.
US: Budget Deficit.

Wednesday

Japan: Capacity Utilisation.
UK: Unemployment Rate, Average Earnings.
Eurozone: Industrial Production, ZEW economic Sentiment.
US: MBA Mortgage Applications, PPI, Retail Sales, Business Inventories.

Thursday

Japan: Tankan Index, Industrial Production.
US: Initial Jobless Claims, Inflation Rate, PPI.

Friday

Eurozone: Trade Balance, Inflation Rate.
US: Capacity Utilisation, Industrial Production, Manufacturing Production, NAHB Housing Market Index, Capital Flows.

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