Gold & Silver Market Morning, December 30, 2011

Asia has started the rebound in the gold price taking it up from $1,529. Ahead of London’s opening the euro held the euro slightly higher at €1: $1.2944. Yesterday afternoon’s Fixings was set at $1,531.00 and in the euro at €1,184.16. Today, we see the Fix set at $1,574.5 and €1,217.052 showing its importance in reflecting a truer demand. Ahead of New York’s opening the gold price fell to $1,571.25 and the euro stood at €1: $1.2940 leaving gold in the euro at €1,214.26.

Silver has also reversed at $27.64 is up 2.3% ahead of London’s opening.  Ahead of New York the silver price was still falling at $2825 up strongly so far.

Gold _{(very short-term)}

The gold price should have a stronger day but on low volumes, in New York today.

Silver _{(very short-term)}

The silver price should have a stronger day, in New York today.

Price Drivers

Still on thin holiday volumes just ahead of 2012 gold hit support in the lower $1,500 area. An indication that central bank lending is easing up is seen in the continuing recovery of the gold-implied lease rates. Lease rates have recovered to -0.23% after reaching a year-to-date low of -0.57% on 6 December.

On the U.S. investment front we see that after the accumulated holdings in the 14 biggest gold ETFs reached an all time high of 2,361 tonnes [75.902 million ounces] on 14 December, they dropped to 2,320 tonnes [74.598 million ounces], a fall of decrease of 1.7% a very small amount. Since then, holdings in ETFs have been stable.

Meanwhile, Italy had to pay an excessive 7% on 10-year paper, yesterday, down from the record highs seen last month but still unsustainable. This was in the face of the back-door QE from the E.C.B. we discussed yesterday. Italy is widely considered to be heading for a severe recession next year, with orders falling and the production outlook worsening.  [More on this in our newsletters and on our website [So subscribe through www.GoldForecaster.com or www.SilverForecaster.com]   

It is becoming clear that despite the huge levels of quantitative easing from central banks aimed at plugging the holes made by bank asset reduction over the last few years, it has not been enough. Fears of runaway inflation have tempered central bankers attempting to only issue sufficient new money to repair these losses. The lack of banking response through investment back into government coffers and not sending it down into the economy to promote growth is strongly pointing the way to deflation taking hold. We are reaching a turning point where deflation hurts the global economy. The U.S. will not be an exception. Central bankers, we believe are more fearful of deflation than inflation. Either way the uncertainty adds to the support for gold prices.

Regards,

Julian D.W. Phillips for the Gold & Silver Forecasters