Gold hit a fresh record above $1,397 an ounce on Friday as investors went bargain-hunting, betting the U.S. Federal Reserve move to buy more government bonds will spur inflation and weaken the dollar going forward. Spot gold traded at $1,394.10 an ounce at 1518 GMT, against $1,392.25 late in New York on Thursday, having earlier hit a record of $1,397.80. U.S. gold futures for December delivery traded up $11.60 at $1,394.70. The move to a new record came despite the fact that the dollar was up on the day, boosted by a U.S. nonfarm payrolls report that suggested the economy may be on a stable road to recovery. A strong dollar usually weighs on gold by denting its appeal as an alternative to paper currencies.
“This illustrates just how much support there is on the long side for gold,” said Tom Kendall, an analyst at Credit Suisse.
“There’s lots of ways the Fed statement impacts gold. One is inflation expectations, secondly what happens to the U.S. dollar. (Also) the commodities complex has been lifted by this action as it accelerates this trend of money looking for returns from emerging markets and hard assets.” Gold had its biggest one-day rise in about six months on Thursday, the day after the Fed pledged a fresh effort to support a struggling U.S. economy by pumping in over half a trillion dollars, undermining the dollar and stoking fears over longer-term inflation.
“The key implication of the QE (quantitative easing) measures is that major currencies — particularly the U.S. dollar — are likely to lose value relative to ‘alternative’ currencies such as gold,” said David Thurtell, an analyst at Citi.
“Gold’s traditional disadvantage, no yield, is largely reduced in a zero interest rate world,” he added. “But its major advantage, limited supply, is massively enhanced, as central banks expand the paper money supply with further QE.”
Policymakers from the world’s new economic powerhouses in Asia criticized the Fed’s move to inject billions of dollars into the U.S. economy, saying it made any substantive deal on cutting global economic imbalances less likely at next week’s Group of 20 meeting in Seoul. Among other metals, silver hit a new 30-year high to catch up with gold prices, while palladium rose to a fresh nine-year high. Silver hit $26.89 an ounce but was last traded at $26.74 against $26.33. Palladium peaked at $697 an ounce and was later at $690 against $680.50 late on Thursday. Platinum was traded at $1,762.15 an ounce against $1,781.
For many years numerous analysts have accused some of the large bullion banks of manipulating the price of silver by using futures contracts offered by Comex. In simple terms they have created an artificial supply of silver by maintaining an oversized short position which they have rolled over month after month, or increased whenever the prices have moved upwards. The position held by four or less of these bullion banks has at times been equivalent to more than fifty percent of the annual production of silver. The effect of this short position has been to suppress the price of silver despite the extremely bullish fundamentals for this metal. However, while this short position has managed to cap the prices of silver for a long time, when these shorts are bought back or covered, the price effect of going short is reversed and it becomes bullish.
After an investigation that has taken the best part of two years, on Tuesday, Oct 26, Bart Chilton, a commissioner at the U.S. CFTC said there had been repeated attempts to influence prices in silver markets. The Commodity Futures Trading Commission began probing allegations of price manipulation in the silver futures market in September 2008. At a hearing in Washington on Oct. 27, CFTC Commissioner Bart Chilton said there have been “fraudulent efforts to persuade and deviously control” silver prices and that violators should be prosecuted.
According to an article published on Bloomberg on Oct. 28, both JP Morgan and HSBC Holdings have been accused in an investor’s lawsuit of placing “spoof” trading orders to manipulate silver futures and options prices in violation of U.S. antitrust law. The investor alleges that starting in March 2008, the banks colluded to suppress silver futures so that call would decline, and put options would increase, according to the complaint filed in a federal court in Manhattan. The collusion was also intended to maintain prices at levels at which some options would expire as worthless. The banks placed so-called spoof trading orders, or the “submission of a large order which is not executed but influences prices and is then withdrawn before it reasonably can be executed,” according to the complaint.
JPMorgan and HSBC declined to comment on any aspect of the investigation.
As far as I am concerned, these banks have done individuals a favour. They have kept the price suppressed and thereby have given us the opportunity to buy this precious metal at prices that are totally undervalued. But, this scenario is about to change and so, I urge investors to take advantage of these low prices in silver and add silver bullion to their portfolios.