Due to a weak dollar, gold, silver and platinum prices have surged this week and brought precious metals again in the spotlight.
Due to a weak dollar, gold, silver and platinum prices have surged this week and brought precious metals again in the spotlight. Platinum closed near a 23-year high on Wednesday. On Thursday it was silver which surprised. It could sustain most of the 7 percent gain from Wednesday, bringing the price to a level not seen for over 12 months. Buyers have been attracted by silver as it is more liquid than gold and relatively cheap. However, a long-term rally seems unlikely. Kodak, one of the largest industrial users of silver, reported a 60 percent fall of its profits, due to weak camera and film sales. This implies that the silver prices seen this week are not sustainable.
There was an announcement which could shape future gold prices. Europe?s central banks are expected to renew their four-year-gold sales agreement which will expire in 2004. The agreement allows central banks only to sell 400 tones of gold per year in order not to destabilize gold markets. However, low return on gold holdings and budgetary pressure in Germany, France and Italy could trigger the decision to increase this quota. It is rumoured that the new pact will allow for 500 tones of gold to be sold. This would also give room for Greece and East European countries to join the agreement. With the establishment of the European Central Bank, there is no need for national central banks to hold gold anymore.
In Russia, the discussion continued if recent events around the arrest of Platon Lebedev were a buying opportunity or the beginning of a business crackdown by authorities and security agencies. Lebedev, one of Yukos' biggest shareholders, is accused of fraud in a 1994 privatisation. The investigations have since expanded to include a tax probe and five murder or attempted murder cases. The uncertainty and therefore the volatility in the market are at record levels. Since the arrest, the Russian stock market index, RTS, lost 18 per cent in only 8 days. The previous bull market was driven by strong fundamentals, but today, the political risks have come into focus. However, the facts like high profits and production growth, which have made Yukos a market favourite, have not changed. Also the positive outlook for the Russian economy as a whole stays in place. It has grown 7.2 percent in the first half of the year. The falling stocks are very unlikely to affect the economy because the volume is too small.
In the currency markets, the outcry of South Korea is worth mentioning. It requested China to allow its currency to appreciate against the dollar. Ongoing interventions would hamper the regions currency market. Earlier, already the US, the European Union and Japan asked China to loosen the currency peg to the dollar. The artificially low currency is boosting Chinese exports but undermines the competitiveness of its neighbours. The Korean won has appreciated by 10.7 per cent against the dollar over the last one and a half years. The renminbi, Hong Kong dollar and Malaysian ringgit have not appreciated because they are pegged to the dollar. Seoul has already intervened in the market to stop the rising of the wong and is determined to act again.