Indian & Chinese Money "Buys the Bloodbath" in Gold & Silver

Fri, May 6, 2011 - 10:56am

WHOLESALE TRADERS looking to buy gold saw Dollar prices whip in a $10 range on Friday in London, heading into the weekend at $1488 per ounce – 5.5% below Monday's record-high spike– as European equities and global commodities stemmed their losses.

Silver bullion also rallied, bouncing from a drop below $34 per ounce but suffering its fifth daily plunge in a row, fully 31% below last Thursday's three-decade high.

New data showed a surprise jump in job creation but a rise to 9.0% in the United States' unemployment rate.

US Treasury bond prices eased back, but the Dollar was left little changed by the news.

The price to buy gold for Euro investors rose 1.6% from yesterday's 3-week low at €32,380 per kilo.

"The silver market has become even more unhinged as the week nears an end," reckons UBS strategist Edel Tully.

"[Yesterday] was another 'bloodbath' day for the precious metals," says a note from MKS Finance in Switzerland – "a real one-way street" of selling.

"It's panic," says Michael Shaoul at the $1 billion Marketfield asset managers in New York, speaking to Bloomberg about this week's broader commodity sell-off.

"It's a classic liquidation move in a crowded trade."

UK Brent crude oil stabilized its 6% drop for the week at $110 per barrel.

End-March saw global investor holdings of raw materials rise 50% year-on-year to a record peak of $412 billion, according to Barclays Capital.

"Was silver a bubble?" asks BNP Paribas's Stephen Briggs today. "I think to a large extent it was."

"Everyone is taking the view that commodities will have some sort of big shake-up," says head of sales Peter Hillyard at ANZ, also quoted by Reuters, "and you'd be foolish to think otherwise."

"This argument will be hard to resist, but should be," forecast GMO asset management's Jeremy Grantham in a recent client letter.

"A second commodity collapse [after the 2008 plunge] may be psychologically hard to invest in...[But] in the next decade, the prices of all raw materials will be priced as just what they are, irreplaceable."

Today in India – the world's No.1 private gold buyer each year –"The weakening trend has hardly impacted retailers activity" ahead of tomorrow's peak spring gold buying festival, says one Delhi-based jeweler, speaking to the Economic Times.

Markets in the city of Lucknow are "full with activity on the eve of Akshay Tritiya, the day when buying gold or silver is considered to be extremely auspicious," says the Times of India.

"The response [to the dip in global gold prices] is just overwhelming," says PC Jewellers' Group director Balram Garg in New Delhi, speaking to NDTV.

"We are catering to a huge rush at our showrooms across the country," says Garg, forecasting sales growth of 30-40% from the festival's already strong levels in 2010.

"Asian investors bought the dip [but] gold is now below $1500," notes Standard Bank's commodity team here in London today – "a level we’ve been targeting for some time.

"We see better value in a long gold position here [but] our bias still favours more downside...closer to $1450."

Another wholesale dealer reports "decent Chinese buying in silver overnight," with 25 million ounces being bought at Friday morning's "limit down" price drop of 8% – the maximum daily move allowed by the Shanghai precious metals exchange.

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