Gold News

Gold Sets Fresh London Record But Ratio to Silver Price Tumbles on Shanghai Surge

GOLD BULLION set a new Dollar-price record in London trade Tuesday but its ratio to the cost of more industrially useful silver tumbled to a 2.5-year low while New York copper also rallied back towards Monday's fresh peak despite doubts over whether this month's 15% surge in the industrial, electrical and green-energy tech metal has been driven by fundamental demand or just a 'short squeeze' or overly bearish traders.
 
"At the moment, it's pure speculative rather than real demand," reckons Robert Montefusco at brokerage Sucden Financial, speaking to Reuters.
 
"It all depends on whether that demand becomes real, because once the specs are out, it'll just fall away."
 
For the precious metals, "The febrile nature of the markets meant that the [weekend's] news of the air crash in Iran that killed the President and the Foreign Minister gave prices a further boost," says bullion-market specialist Rhona O'Connell at brokerage StoneX.
 
Gold and silver "need to correct in the short term, of course," O'Connell says. "But this move is confirmation of the change in range for both metals."
 
With gold fixing in London's bullion market around $2426 per Troy ounce at 3pm today – setting a fresh benchmark high for the 3rd session running – silver rose back above $32 having traded above the equivalent of $35 in Shanghai overnight. 
 
That put the London ratio of gold to silver prices at 75.5, the lowest since New Year 2022 and down from a daily average of almost 82 ounces of silver per 1 ounce of gold across 2020-2023.
 
A falling Gold/Silver Ratio is widely seen as signalling a stronger economic outlook, because it means the 'safe haven' metal is falling in value relative to silver, which finds over half its net end-user demand from productive applications including electricals, photo-voltaics and the chemicals industry.
 
Chart of London gold/silver ratio, daily values. Source: BullionVault
 
The gap between US copper prices on the CME futures exchange versus London's LME fell hard from yesterday's record New York premium of $1,000 per tonne, down towards $200 amid rumours that 100,000 tonnes of the base metal are sailing to CME warehouses after major commodity traders Trafigura, IXM and Chinese copper producers were reportedly caught in a 'short squeeze' with potential supplies from London blocked by US sanctions against Russian or Chinese-branded bars.
 
Despite the Communist government's move to support and stimulate China's real-estate sector, copper demand in China – the world's 2nd largest economy and No.1 manufacturing nation – appears to have weakened sharply, with prices in the Yangshan Port district of Shanghai falling $5 per tonne below London prices last week after showing a $60 premium in March.
 
Gold imports to China – the precious metal's No.1 miner, central-bank buyer, private consumer and importing nation – last month fell to the lowest so far this year, Bloomberg reports, totalling 136 tonnes.
 
That was still in line with April last year however, despite the Yuan price of gold increasing by 24.5%.
 
Gold in Shanghai today edged back 1.1% from yesterday's new all-time high, putting May's month-to-date average price 0.4% above this April's level and holding the premium to London prices above $25 per Troy ounce.
 
" [China's] robust investment demand offset gold jewellery weakness," says the mining industry's World Gold Council in its review of last month's action in China, noting that withdrawals through the Shanghai Gold Exchange – the only legal route for bullion to enter private-sector circulation – totalled 131 tonnes in April.
 
"Recently there have been many uncertain factors affecting market operation, market risks have significantly intensified, and price fluctuations have increased significantly," said the SGE in a market notice overnight, also raising margin 'downpayment' requirements for trading on the exchange.
 
"All member firms are requested to increase their awareness of risk prevention, make detailed risk contingency plans, and to remind investors to do a good job in risk prevention, reasonably control positions, and invest rationally."
 
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Gold trading volumes through the SGE fell back today from yesterday's spike to the heaviest in 4 weeks. But while volumes in gold derivatives on the Shanghai Futures Exchange also fell back after the SHFE said it is raising margin requirements as well – hiking the ratio paid on speculative transactions to 12% of each contract's value from Thursday – silver trading grew yet again, more than doubling on the day to total 3.2 times the past month's daily average. 
 
"From the perspective of the gold-silver price ratio, the price of gold has reached a historical high, which may cause investors to turn to the silver market," says researcher Bu Yili at Chinese e-recycling site Paipai.com.
 
"Although the industrial demand for silver is still unclear, in the short term, as long as international gold continues to be collected and stored, the silver market will also follow," agrees Wang Xu, senior consultant at Jufeng Investment, also speaking to the China Securities Journal.
 
"Gold prices continue to rise."
 

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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