Upswing Continues for Silver and Gold Bullion, ECB Bond Buying Wouldn’t Be Money Creation

Gold Bullion traded above $1690 per ounce Tuesday morning in London, in line with where it started the week, while stocks and commodities were broadly flat and US Treasuries fell, as markets looked ahead to this week’s European Central Bank policy meeting.

Silver Bullion rose as high as $32.33 per ounce – 1.9% up on the week so far, and the highest level since April.

“Precious metals are continuing their upswing,” says Tuesday’s commodities note from Commerzbank.

“Silver has made even stronger gains than gold…underpinned by speculative financial investors.”

On the Shanghai Futures Exchange, the most actively traded silver contract hit a record high of 6932 Yuan per kilogram, newswire Reuters reports. The SFE launched its silver contract in May of this year.

In India meantime, which reclaimed its traditional place as the world’s biggest Gold Bullion buying nation in the second quarter, Rupee Gold Prices hit a fresh all-time high of Rs 31850 per 10 grams, according to local reports.

Euro Gold Bullion prices remained within 2.5% of their all-time high se  hit last September, while on the currency markets, the Euro climbed back above $1.26 in Tuesday’s Asian session, after ECB chief Mario Draghi reportedly said he would be comfortable with his institution buying government bonds of up to three years in maturity.

“[Draghi] considers that buying medium-term bonds of three years on the secondary markets is not money creation,” said French MEP Jean-Paul Gauzès, who sits on the Economic and Monetary Affairs Committee, before which Draghi appeared yesterday.

“Since in effect those debts will be due very quickly and the funds will be put back into the circuit…he said for example three years is OK, 15 years no.”

The ECB is due to make its latest policy announcement this Thursday, followed by a press conference with Draghi.

“We have to be very careful that we don’t raise false expectations,” warned German finance minister Wolfgang Schaeuble, speaking to Deutschlandfunk radio yesterday.

“It has to remain very clear, state debt can’t be financed through monetary policy. Therefore we can’t have a decision…that’s not covered by the ECB mandate.”

Small businesses in Spain meantime are facing the highest borrowing costs in four years – while those in Germany are paying record low interest rates – the Financial Times reports, citing ECB data published Monday.

“The fragmentation [of the Eurozone] is getting worse,” says David Riley, head of sovereign ratings at ratings agency Fitch.

“If this trend gains even greater momentum we’ll face a fundamental reordering of the Eurozone. It undercuts the whole rationale of the Euro, and could eventually make it easier for it to break up.”

“In such a difficult phase these [struggling] countries deserve our solidarity and that we root for them to overcome their difficulties,” German chancellor Angela Merkel told a crowd of beer drinkers in a tent near Munich yesterday.

“[But] we have [also] to press for reforms in other countries even if they sometimes say we’re hardline…it’s not enough just to keep muddling through.”

Only a quarter of Germans however think Greece should remain in the Euro, according to poll results published by the FT earlier this week. Bank of America Merrill Lynch has explored the option of filling trucks with cash and driving them to Greece to help clients keep their businesses running in the event of a Greek Euro exit, while Ford has configured its computer systems to accept a new Greek currency, according to the New York Times.

Rating agency Moody’s meantime has changed its outlook for the European Union’s Aaa credit rating from ‘stable’ to ‘negative’.

“The negative outlook on the EU’s long-term ratings reflects the negative outlook on the Aaa ratings of the member states with large contributions to the EU budget,” said a statement from Moody’s, adding that Germany, France, the UK and the Netherlands account for 45% of EU budget revenue.

“Moody’s believes that it is reasonable to assume the same probability of default by the EU on its debt obligations as the highest rated key members states’ probability of default.”

In July, Moody’s put Germany and the Netherlands on negative outlook.

In South Africa, four people were injured after police and security guards fired tear gas and rubber bullets at sacked Gold Mining workers who were trying to prevent colleagues from working at Gold One’s Modder East mine, Reuters reports.

In the separate dispute at the Gold Fields KDC East mine, this afternoon will see a mass meeting aimed at getting 12,000 people back to work.

Thirty-four striking platinum workers were shot dead last month during a dispute at Lonmin’s Marikana platinum mine.


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