Tue, Feb 15, 2011, 2:19PM EST - U.S. Markets close in 1 hr 41 mins
NEW YORK (TheStreet) -- Gold and silver prices were rising Tuesday on a weaker dollar and mixed inflation news out of China and the U.K.
Gold for April delivery was adding $11.10 to $1,376.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price today touched a high of $1,377.50, a key resistance area, and a low of $1,361.30. The spot gold price was adding more than $13, according to Kitco's gold index.
Silver prices were climbing 31 cents to $30.85, having broken through their $30.50 resistance area. Backwardation, where front contract months trade higher than contracts farther out, was still in effect.
"It's very bullish for silver because there is a need for the front month," says Anthony Neglia of Tower Trading, "so what they do is they buy the front months and sell the backs." When backwardation ends, then contango comes back into play, where the future months are more expensive than the current spot month.
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"Silver prices will lose some of their steam when contango comes into the market, but the bullish sentiment will still be there. It's just that the prices will align once the physical demand is met."
Inflation data was leading the precious metals higher Tuesday. The U.K. reported that January's Consumer Price Index rose 4% from 3.7% in December. China reported an inflation reading of 4.9%, higher that 4.6% for December but lower than the expected 5.4%.
The higher number in the U.K. means the central bank might be coerced into raising key interest rates, but the Bank of England has adamantly shied away from that course of action for fear of choking off growth. The country grew negative 0.5% in the fourth-quarter.
A strong reading in China will also perpetuate negative real interest rates in the country, which is currently negative 1.9%. On the flip side, because the number wasn't as hot as some analysts expected, the People's Bank of China might not be forced to raise interest rates as aggressively, something it hates doing and has done three times since October.
Gold and silver thrive in negative real interest rate environments, as the local currency is worth less and the precious metals become a more appealing place to store your wealth.
Gold has also shrugged off attempts by other countries to fight inflation, largely ignoring Sweden's 25 basis point interest rate hike Tuesday.
A weaker dollar was also helping silver and gold, with the U.S. dollar index down 0.28% to $78.38. The euro was rising 0.31% to $1.35 against the dollar after Spain raised €6.17 billion for one year and 1.5 year duration, both at significantly lower interest rates.
Technical trading was also ruling the market. Silver has closed above the $30 level for four trading days in the past week, which is a very bullish signal for traders. "I think silver prices look fantastic," said Phil Streible, senior market strategist at Lind-Waldock. Silver broke through the small resistance area of $30.50, which is bringing momentum traders into the market.
As for gold, prices still have more to prove. Streible says "$1,377-$1,378 is still the upper end of the range. I think that's been a challenge for gold for a couple of weeks now and really it's going to take a close over there for gold to really move higher." After a strong close, Streible says, gold could challenge the $1,400 level.
Gold and silver bugs will also be looking to 13F filings, which were released today and highlight who and how big named investors and investment banks are trading precious metals in the fourth quarter.
The biggest news was that JPMorgan Chase sold 4.5 million shares of gold ETFs, it dumped 1 million from the SPDR Gold Shares and 3.5 million from the iShares Gold Trust. The investment bank rotated more heavily into silver buying 2.4 million shares of the iShares Silver Trust for a total of 3.6 million shares. JPMorgan does have a very small position in the ETFS Physical Gold of 400,748 shares.
Hedge funds run by John Paulson and George Soros are always closely watched. Paulson is still the largest holder of the GLD with 31.5 million shares, while Soros is the seventh with 4.7 million shares. The GLD is the biggest position in both of their portfolios.
This kind of loyalty to gold can give confidence to gold investors who not only want to invest like the behemoths but also want validation for their holdings.
Paulson sold a handful of shares of AngoldGold Ashanti but is still the largest shareholder. Paulson stood pat in its shares of Gold Fields, NovaGold, Randgold and Iamgold, but did sell 13.7 million shares of Kinross Gold.
Soros was a little more active in the gold market closing out positions in several junior gold stocks: Seabridge, Gammon Gold, and New Gold. Soros still owns NovaGold, unchanged at 12.91 million shares, while adding 98,500 shares of Kinross Gold.
Gold mining stocks, a risky but profitable way to buy gold, rallied Monday. Barrick Gold added 2.19% at $48.53 while Newmont Mining was up 0.54% at $57.19.
Other large gold stocks Randgold and AngloGold Ashanti closed at $77.86 and $45.07, respectively.
-- Written by Alix Steel in New York.
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