Silver surges to 10-month high as China launches landmark gold-pricing fix

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Gold and silver continued their two-pronged attack Tuesday after an unexpected plunge in new-home starts and permits cast a fresh cloud over the U.S. economy.

Also boosting gold was news that Chinas Shanghai Gold Exchange has officially launched its yuan-denominated gold-price fixing. The move is seen as a major Chinese step to exercise more control over golds pricing and increase the stature of the yuan currency versus the U.S. dollar.

This is a very important development and will obviously be very closely watched, Societe Generale analyst Robin Bhar told Bloomberg.

Rate-hike expectations fading: Rising 2% to hit a one-week high, gold gained about $20 to top $1,256. But once again, silver was the real head-turner, reaching a 10-month peak in a 5.2% ascent and breaking through the psychologically significant $17 level.

Gold should probably hang on to its gains in the second quarter because the dollar is likely to stay relatively subdued with the expectations of U.S. interest rate hikes being pushed out to the second half of this year, Mitsubishi analyst Jonathan Butler told Reuters.

Silvers rise driving down gold ratio: Whats driving silver? Traders are seizing on the disparity in the gold-to-silver price ratio, which currently suggests that the white metal is underpriced relative to the yellow metal. The ratio fell to its lowest level in four months, to 74, on Tuesday, down from a high of 83 in March, its highest level since 2008.

Inflows into silver ETFs are nearing record levels, trading volumes in New York are soaring, and the U.S. Mints sales of its 2016 silver American Eagle coins are continuing at a blistering pace, with more than 17.6 million sold so far this year.

Moreover, with signs that its economy might be picking up, China is a major silver buyer of late, according to Ronald Leung of Lee Cheong Gold Dealers in Hong Kong. One reason is that the dollar is weakening. Another reason is that there is heavy buying in silver in Shanghai, and that has triggered buying in gold as well, he told Reuters.

New-home starts plunge 9%: But back to the U.S. housing data. New-home construction slumped in March, with residential starts falling by 8.8% in what is supposed to be one of the busiest times of the year for the construction industry, while permits also dropped.

Meanwhile, underneath the rosy depictions of U.S. job growth is bad news that temporary-help employment has fallen for two of the past three months, down 1.8% for the year, while the Federal Reserves own labor-market conditions index also turned negative last month. A slowdown in temp hiring has signaled recessions in the past.

With U.S. manufacturing and retail sectors already suggestive of recessionary conditions, the housing market is or was the one major bright light left. Now that U.S. growth seems to be grinding to a near halt, the Fed will have little choice but to keep its monetary spigots flowing in the form of near-zero interest rates. The odds of an imminent rate hike are fading, and thats good news for both gold and silver prices.