Inflation worries send gold and silver higher

The dollar’s downward spiral and concerns about inflation pushed gold and silver higher this week as investors clamoured for an alternative store of value.

Gold notched a record high above $1,569 per troy ounce, rising 4.1 per cent on the week.

Silver climbed 3.9 per cent on the week, touching a 31-year peak above $49 per ounce that was just shy of the $50 nominal record reached during a notorious market squeeze in 1980.

Oil also rose, with benchmark ICE June Brent closing at $125.89 per barrel and Nymex June West Texas Intermediate settling at $113.93 per barrel.

The gains came as the dollar fell 1.5 per cent against a basket of leading currencies to its weakest level since July 2008, when crude oil prices peaked above $145 per barrel.

The US Federal Reserve raised its inflation forecast for this year and signalled its policy of ultralow interest rates would persist. “The dragon of inflation may not be fully awake in the world but the people who slumber around his body are beginning to worry he’s stirring,” said Sean Corrigan, chief investment strategist at Diapason Commodities Management in Lausanne, Switzerland.

Silver prices have gained 160 per cent in the past year as people buy coins and funds on fears of weakening paper currencies.

The $17bn iShares Silver Trust, a US exchange-traded fund backed by 355m ounces of bullion, had trading volumes that exceeded the largest equity ETF’s volumes early in the week.

Silver futures on New York’s Comex exchange had record volumes on Monday, and in April were triple the levels of a year ago.

James Steel, precious metals analyst at HSBC in New York, said: “The dollar is on the defensive. There’s concern about US fiscal profligacy. There are euro sovereign risk issues. There’s strong underlying retail investor demand for both silver and gold but particularly silver.”

A weakening dollar tends to buttress the value of dollar-denominated commodities. US crude futures reached their highest levels since mid-2008.

“There is underlying demand strength,” said Jan Stuart, global oil economist at Macquarie in New York. “You can see that from refining margins. The flat price tends to get a lift from a weakening dollar.”

Broad commodity indices such as the S&P GSCI and Dow Jones-UBS ended the week unchanged, however.

They were constrained by agricultural markets where a rally has cooled amid uncertainty over demand. ICE May cotton futures plunged 7.7 per cent to $1.7228 per pound as China, the biggest importer of the fibre, cancelled imports and traders reported rising stockpiles of unsold yarn.

(Source: http://www.ft.com/cms/s/0/dd9007d2-728b-11e0-96bf-00144feabdc0.html#axzz1KzvzUsDg)