Gold May Drop in New York After China Orders Banks to Hold More Reserves
By Nicholas Larkin - Nov 19, 2010
Gold may decline in New York after China raised bank reserve ratios again, curbing demand for bullion.
China ordered its banks for the fifth time this year to set aside larger reserves. Gold earlier gained as the euro climbed against the dollar amid optimism a bailout for Ireland will limit contagion across Europe’s larger debt markets. Bullion futures, which usually move inversely to the greenback, reached a record $1,424.30 an ounce on Nov. 9.
“Today’s China announcement is a strong signal that the next benchmark interest-rate increase will probably be announced within two weeks,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Higher rates would “be negative for gold” because they would constrain Chinese investors’ liquidity and increase the opportunity cost of holding the metal, he said.
Gold futures for December delivery lost $4.60, or 0.3 percent, to $1,348.40 an ounce at 8:38 a.m. on the Comex in New York, erasing a gain of as much as 0.7 percent. The metal for immediate delivery in London was 0.3 percent lower at $1,348.90.
Bullion rose to $1,357.50 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,350.25 at yesterday’s afternoon fixing. Twelve of 19 traders, investors and analysts surveyed by Bloomberg, or 63 percent, said the metal will rise next week. Four forecast lower prices and three were neutral.
Draining Cash
The reserve ratio will increase 0.5 percentage point starting Nov. 29, the People’s Bank of China said. It’s draining cash from the financial system in an effort to limit inflation and asset-bubble risks in the world’s fastest-growing major economy.
The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, slid as much as 0.6 percent, fueling demand for bullion as an alternative investment, and was last down 0.2 percent.
“The dollar is still in a very unstable position,” said Bernard Sin, head of currency and metal trading at bullion refiner MKS Finance SA in Geneva. “The market is still concerned. There’s no confidence in Europe.”
Ireland’s central-bank governor, Patrick Honohan, said he expects his nation will seek a package worth “tens of billions” of euros to help rescue banks battered by the country’s property slump. Officials of the European Union, International Monetary Fund and European Central Bank yesterday started to study the banks’ books.
ETP Holdings
Gold assets in exchange-traded products fell 4.56 metric tons to 2,082.65 tons yesterday, according to data compiled by Bloomberg from 10 providers. That’s the biggest drop in three weeks. Holdings reached a record 2,104.65 tons on Oct. 14.
Silver for December delivery in New York fell 0.4 percent to $26.73 an ounce after yesterday jumping 5.2 percent, the most in two weeks. It reached a 30-year high of $29.34 last week and is up 59 percent this year.
Canada’s sales of silver coins will jump more than 50 percent this year and will continue to climb in 2011, said David Madge, director of sales at the Royal Canadian Mint.
Palladium for December delivery gained 1.2 percent to $703.50 an ounce, erasing a drop and extending yesterday’s advance of 6.2 percent, the most since May. Platinum for January delivery was 0.4 percent lower at $1,657.60 an ounce.
To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net
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