Gold price remains firm in European session with the benchmark contract likely gaining for a 5th day, Silver, following gold's suit, has strengthened recently but the rally is stronger, sending the gold-silver ratio to 43.58, the lowest level since 1998. The benchmark contract for silver jumped continues to climb higher after making a fresh 30-month high yesterday. Demand for physical silver has been strong. The US Mint sold 6.4M oz of silver in January, the highest monthly figure since sales began in 1986. According to the Royal Canadian Mint, sales of 1-oz Maple Leaf silver coins in 2010 likely surpassed surpass the level of 10.3M oz in 2009.

G-20 finance ministers and central bankers gather today and tomorrow in Paris, France. French Finance Minister Christine Lagarde, host of the meeting said she hopes finance leaders will reach an accord on trade imbalances. Obviously, discussions on RMB appreciation and Special Drawing Rights (SDR) are on the agenda. However, we do not expect agreement will be reached and the French chairmanship is unlikely to pressure China hard currency appreciation. Topics such as reserve diversification and policy guidelines are also under the spotlight.

Russia in 2009 showed its support on SDR and suggested inclusion of the ruble, RMB and gold in the basket containing USD, EUR, GBP and JPY. In its recent paper, the IMF discussed difficulties regarding inclusion of RMB in its current SDR basket. It's unlikely that the RMB will be added in the medium-term as it's pegged against the US dollar. In this case, adding the RMB to the SDR basket would be the same as increasing the weight of the USD in it. Other issues such convertibility are also needed to be addressed.

According to the World Gold Council, Russia bought 135.3 metric tons gold in 2010. Other emerging countries are also building up gold reserves as USD's outlook has turned weak in recent years.


Another issue would be excessive volatility in commodities. Emerging countries such as China and India have begun monetary tightening so as to curb growing inflationary pressures which have been caused by surges in food and energy prices. In Europe, inflationary pressures have been looming with headline CPI in the 17-nation Eurozone and the UK overshooting targets. While inflation in the US remains subdued, the trough has likely been passed. Rising inflation is a new threat the policymakers have to address as Lagarde stated, 'too much inflation is not going to be conducive to growth'.