Precious metals' rise and opinions are conflicting, where inflation might be the judge
Opinions are conflicting around the evaluation of precious metals appreciation and current traded levels, specifically gold. Although some may see that the fragile global economic conditions could be the reason behind the drop witnessed on demand for metals in general; meanwhile, others mention that the credit crisis' traces can be witnessed throughout the global economy, despite the easing headwinds, which might be the reason behind the purchasing of precious metals.
However, another argument is that the dollar's weakness will increase demand on precious metals; whereas some think that the direction is heading towards stock markets and high-yielding investments that will cause precious metals to depreciate.
This conflict of opinions could in fact be plausible and reasonable throughout the various possibilities for precious metals, such as silver and platinum; however, gold seems to be gaining diverse attention, since gold seems to be flourishing amid the previously mentioned conditions due its continued steady appreciation which is increasing further its appeal to all market participants regardless of their standpoint.
As for yesterday's trading session; we witnessed a slight rise in precious metals, where gold appreciated from 1172.00 in the AM fixing and closed at $1175.75 per ounce in London. On the other hand, gold closed with gains of 0.19% at $1178.90 per ounce in New York.
However, platinum and silver, spiked more than gold; silver rose by 1.21% and closed at $18.47 per ounce, platinum followed and gained by 1.15% to close at 1453.00 in New York. In addition, precious metals fell with the start of the New York trading session, but as we can see metals have resumed to their gains before the end of the session.
Today, precious metals are trading positively precisely as of 02:22 EST; where gold is trading at 1181.20, while silver is at 18.50; and platinum settled with a slight rise, where we see it trading bullishly at $1454.00 per ounce.
Meanwhile, traders yesterday cautiously stepped into financial markets; where U.S. stock indices rose, while main European stock indices fell in general. As for today, Asian indices soared for the second consecutive day. From here, we see that it had influenced the gains for precious metals that are supported by speculations and investments in the market.
The S&P GSCI index rose by 5.90 points to close at 512.57 points nearing its highest levels for this year, where energy commodities backed this gain at a time crude had risen towards $78 per barrel; whereas the RJ/CRB Commodity index also rose by 4.30 points to close at 277.40 due to the effect of precious metals, which takes up a major part of this index's weighted average.
Furthermore, the Japanese central bank set its interest rate at 0.1% today in an emergency meeting and increase emergency measures, allocating 10 trillion yen to in short term loans to commercial loans; the step was taken to fight falling consumer prices and increase liquidity to stem the yen's continue appreciation as it trades around its 14-year high versus greenback.
Meanwhile, the Australian central bank raised its interest rate to 3.75% today up by 25 basis points. Hence, we see that members of the G7 maintain their low interest rates and emergency measures, while others have started to raise interest rates and head towards contractionary policies. In addition, major economies are currently exiting the economic recession and have returned to growth, at the same time we see that fragility maintains surrounding major economies, such as the U.S., Japan, Europe and UK; preventing them from raising interest rates.
Also, inflation signs are appearing all over the world as the dollar continues dropping due to this pressure; where data released from Europe yesterday, signaled that inflation might possibly leap, since annual inflation levels in Europe jumped from -0.1% to 0.6% in November. This leap could be worrisome if it prevails at this rate while commodity indices are still trading with overall upside bias.
The low interest rates, alongside governmental stimulus plans, could be behind the rise in inflation on the long run. However, in the meantime gold is being demanded as a safe haven and hedge against the dollar's drop and global economic instability, in addition to the fears surrounding financial markets. Consequently, fears are arising due to inflation's possibly bubble, which could be governing gold over the medium long terms; thus, our expectations are intact for further gold appreciation over the coming period.