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Gold hits new highs as USD falls and inflation fears mount
Gold blasts to USD1,569/oz on mounting inflation fears and
in particular the impact of rising commodity prices; there is
no indication the bullion rally will end anytime soon
Violence in the Middle East increases geopolitical risks and
supports bullion
USD weakness is an important element in gold’s rally; silver
nears USD50/oz as mine supply increases continue
Market focus, emerging trends
Gold and silver surged, propelled by mounting fears of inflation and a sagging USD.
Euro-zone inflation this month rose 2.8% year-on-year, exceeding the European Central
Bank’s 2% target, according to Eurostat. Meanwhile, Russia’s central bank raised its key
interest rate 25bp due to rising inflation, according to the Reserve Bank; consumer
inflation in Russia is running at 9.6%, above the Reserve Bank’s target of 7.0%. In the
US, consumer spending in March rose 0.6% from February, but the increase was due to
more of the household budget being spent on food and fuel, according to the Bureau of
Economic Analysis.
As an inflation psychology grows, gold and silver are natural beneficiaries. But if the rise
in euro-zone inflation points to an ECB rate increase, then the gold rally may run into
some headwind. In our view, gold reacts not just to inflation but to the anticipated
monetary response to inflation. The Russian Reserve Bank tightened monetary policy due
to rising inflation. China is pursuing its own form of monetary tightening by raising
reserve ratios. The Reserve Bank of India raised rates as recently as March, to constrain
inflation. It is possible that if monetary policies continue to be tightened outside the US, gold may run
into resistance even if the US Federal Reserve persists with its easy monetary policies.
Although global monetary tightening may eventually reverse the bullion rally, the near-term direction for
gold and silver looks higher. Oil and food prices are cutting into consumer income, raising uncertainty
and damaging consumer confidence. In the near term, the slide by the USD is propelling gold and silver
higher. An article in the Wall Street Journal said that US officials might not be too concerned about the
USD’s decline. Although Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke have
voiced support for the USD, the article pointed out that their policy initiatives do not appear to be
supporting the USD. HSBC G-10 currency strategist Robert Lynch said that if the market senses that US
officials are indifferent to the USD’s decline, or worse, even condoning a USD decline, then risks would
grow for a more concerning and destabilizing reduction in global confidence in the USD. This would be
tailor-made for a gold rally, we believe. In the near term, USD concerns are likely to push gold and silver
higher, in our view, but global monetary tightening may eventually stymie the bullion rally.
Mounting violence in Syria is a reminder that there is a geopolitical component to the USD’s rally. Syrian
popular discontent and the civil war in Libya are gold-supportive. Silver was near USD50/oz, and sheer
trading momentum appears likely to take the market above that level. But silver mine supply is rising
rapidly. Mexico is a major silver producer. According to Mexico’s National Statistics Institute, February
silver mine supply rose 23.4% to 278,287kg due to new mine production and increased output at existing
facilities. We expect increasing mine supply to be a factor in eventually restraining the silver rally.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gold hits new highs as USD falls and inflation fears mount
Gold blasts to USD1,569/oz on mounting inflation fears and
in particular the impact of rising commodity prices; there is
no indication the bullion rally will end anytime soon
Violence in the Middle East increases geopolitical risks and
supports bullion
USD weakness is an important element in gold’s rally; silver
nears USD50/oz as mine supply increases continue
Market focus, emerging trends
Gold and silver surged, propelled by mounting fears of inflation and a sagging USD.
Euro-zone inflation this month rose 2.8% year-on-year, exceeding the European Central
Bank’s 2% target, according to Eurostat. Meanwhile, Russia’s central bank raised its key
interest rate 25bp due to rising inflation, according to the Reserve Bank; consumer
inflation in Russia is running at 9.6%, above the Reserve Bank’s target of 7.0%. In the
US, consumer spending in March rose 0.6% from February, but the increase was due to
more of the household budget being spent on food and fuel, according to the Bureau of
Economic Analysis.
As an inflation psychology grows, gold and silver are natural beneficiaries. But if the rise
in euro-zone inflation points to an ECB rate increase, then the gold rally may run into
some headwind. In our view, gold reacts not just to inflation but to the anticipated
monetary response to inflation. The Russian Reserve Bank tightened monetary policy due
to rising inflation. China is pursuing its own form of monetary tightening by raising
reserve ratios. The Reserve Bank of India raised rates as recently as March, to constrain
inflation. It is possible that if monetary policies continue to be tightened outside the US, gold may run
into resistance even if the US Federal Reserve persists with its easy monetary policies.
Although global monetary tightening may eventually reverse the bullion rally, the near-term direction for
gold and silver looks higher. Oil and food prices are cutting into consumer income, raising uncertainty
and damaging consumer confidence. In the near term, the slide by the USD is propelling gold and silver
higher. An article in the Wall Street Journal said that US officials might not be too concerned about the
USD’s decline. Although Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke have
voiced support for the USD, the article pointed out that their policy initiatives do not appear to be
supporting the USD. HSBC G-10 currency strategist Robert Lynch said that if the market senses that US
officials are indifferent to the USD’s decline, or worse, even condoning a USD decline, then risks would
grow for a more concerning and destabilizing reduction in global confidence in the USD. This would be
tailor-made for a gold rally, we believe. In the near term, USD concerns are likely to push gold and silver
higher, in our view, but global monetary tightening may eventually stymie the bullion rally.
Mounting violence in Syria is a reminder that there is a geopolitical component to the USD’s rally. Syrian
popular discontent and the civil war in Libya are gold-supportive. Silver was near USD50/oz, and sheer
trading momentum appears likely to take the market above that level. But silver mine supply is rising
rapidly. Mexico is a major silver producer. According to Mexico’s National Statistics Institute, February
silver mine supply rose 23.4% to 278,287kg due to new mine production and increased output at existing
facilities. We expect increasing mine supply to be a factor in eventually restraining the silver rally.
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