Gold spurred by inflation news in UK and China

A smaller than anticipated (but still seventh-in-a-row) gain in US retail sales activity dragged the US dollar marginally lower on the trade-weighted index (down 0.09 at 78.56) this morning, and, that data, coupled with rising inflation news out of the UK and China motivated further speculative activity in gold. The yellow metal has approached the $1,375- $1,385 resistance area; one from which (if additional fund buyers materialize), it could reattempt an assault on the $1,400.00 price point.

Spot gold prices traded between $1,363 and $1,378 this morning, while spot silver prices oscillated between $30.47 and $30.97 per ounce. Further gains were also recorded in platinum and in palladium, with the former rising as high as $1,852.00 per ounce, and the latter climbing to a high of $853.00 the troy ounce. The precious metals’ complex pared its earlier advances somewhat after the first hour of active trading, following the aforementioned approaches of chart resistance areas.

ABN AMRO notes that “since the start of 2011 palladium has continued its uptrend despite gold’s moderate correction. While gold has lost around 4%, palladium has risen by a healthy 3.5%, driven in part by strong investor activity in Nymex futures and in palladium ETFs, which have continued to see record levels in cumulative holdings.”

ABN’s analytical team then asks: “Why has palladium out-done all other precious metals?” and offers that: “the answer probably lies in a combination of two things – solid fundamentals, which have caused investors to take sharp notice of the metal, and its lower price relative to gold. Surging investment activity and improving physical demand has fuelled the metal’s price run-up to a 10-year high in January this year.”

Gold ETF activity tallies showed a modest 0.79 tonnes of the yellow metal as having been added to balances on Monday, following a six-session string of tonnage losses. On the 11th of the month, the bullion balances in the ETPs being tracked by Bloomberg showed a cumulative figure of around 2,020 tonnes; the lowest since June of 2010, and almost 100 tonnes beneath a record level of 2,114.6 tonnes that was noted in December of last year.

It was also learned that the Soros Fund Management LLC added some gold to its holdings in Q4, while Paulson & Co. did not. The Soros gold addition was not of the highest order of magnitude, either; it amounted to 77 kilos of gold – more of a “rounding adjustment” than a fresh strategic bid on imminent stratospheric gold prices, apparently.

Clearly helping recent price gains in the noble metals’ sector (aside from lavish, on-going ‘attention’ from ETFs) was the news that Chinese automotive sales continue to show no signs of slowing despite the expiration of government-provided tax incentives and the institution of quotas intended to actually curb car purchases. Beijing, for instance, has officially limited the number of cars that may be purchased each month, and its auto retailers stand to lose more than $9 billion in sales this year. At the end of the day, however, it is deemed kind of important to be able to continue to breathe and to actually get around in said vehicles…

While the UK inflation news revealed that domestic price gains have reached the 4% level (twice the BoE’s target) and that it has been above target for 14 months now, Governor Mervyn King is expected to mount a second defense of the British central bank’s policies that have engendered such statistics, tomorrow, when he presents his quarterly economic outlook to Chancellor Osborne. Rate hikes are still not being overtly talked about, albeit the markets are factoring in a possible adjustment very near year’s end.

That is not quite the situation in China, however. As had been expected, the inflation data from Beijing did reveal price gain trends at work in January (albeit ever so slightly more tempered) that are raising the odds of an imminent and perhaps more aggressive rate hike campaign on the part of the PBOC.

Consumer prices climbed by 4.9% and producer prices rose 6.6% in the world’s second largest economy last month. The extension of credit by Chinese banks also showed no signs of slowing, as lending activity in January basically doubled (to 1.2 trillion yuan) from December’s levels. Lend, baby, lend. Until you are ordered not to, that is.

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