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LAWRIE WILLIAMS: Gold and silver rebound as take-down lacks legs

Gold and silver investors will have been heartened by the sharp rebound in precious metals prices today, after a couple of days where the only way was down.  Heavy trades on the paper markets had seen gold fall from near the $1,300 mark on Friday to the high $1,250s yesterday.  In percentage terms silver had performed even worse, being knocked back to below $16.90 on Monday and the Gold:Silver ratio rising back to over 74.  At the time of writing silver had recovered sharply to above $17.50 with the gold:silver ratio coming back down to 72.80. 

The dollar was slightly weaker, but not significantly so, but the trigger for the rises may well have come from Asia with the SGE afternoon gold fix lifting the gold price to CNY267.09 a gram – equivalent to around  the mid $1,270s at the prevailing exchange rate.  This could be an expression of Chinese discontent with the machinations of the COMEX paper gold market.  Could the SGE already be beginning to take the lead on price setting for physical gold?

Meanwhile bank analysts are beginning to be perhaps rather less bearish on gold than before.  Even Goldman Sachs which had famously predicted gold would fall back to $1,050 and below, and had told investors to sell gold short back in mid-February, has mitigated its downward views somewhat – although still remains on the bearish side.  It has just set new three, six and 12-month forecasts to $1,200, $1,180, and $1,150 an ounce, from $1,100, $1,050 and $1,000 respectively, in recognition that the U.S. Fed is unlikely to raise interest rates as far and as fast as it had previously suggested.  This is something of a climbdown, although not exactly a positive view on gold.

Meanwhile analysts at the other major bête noire bullion bank in the minds of gold bugs everywhere, JP Morgan, appear to have been taking a more positive view, although still perhaps conservative in the minds of those looking for a really big kick-up in the gold price this year.  CNBC has reported JP Morgan Private Bank’s head of fixed income, currencies and commodities, Solita Marcelli, as saying "We're recommending our clients to position for a new and very long bull market for gold,”.  She sees this year’s  20% rise so far as just the start of the next leg higher. "$1,400 is very much in the cards this year." She says.

Marcelli reasoned that, with so many negative interest rate policies around the world, gold will continue to be bought as an alternative currency. And, with expectations that investors will seek to hedge against the resulting volatility, she believes that gold will remain attractive in a world where bonds and U.S. rates may cease to be the main risk-off asset CNBC reports.

11 May 2016 | Categories: Gold, Silver

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