By: Adrian Ash, BullionVault
THE PRICE OF GOLD in the wholesale market fell again on Wednesday in Asia and London, erasing the final $7 of last week’s 3.4% gain for US investors as the Dollar held steady ahead of Fed chairman Ben Bernanke’s two-day testimony on banking reform and his zero-interest-rate policy.
European stock markets reversed a slight drop by lunchtime, while government bonds ticked higher and crude oil fell through $79 per barrel.
Silver bounced higher from $15.67 an ounce for the second time in a week.
“Since the Chinese New Year, there has been little buying interest in the physical gold market, which seems to have capped upside,” says Walter de Wet at Standard Bank.
“We anticipate to see range trading [in gold] between $1165 and $1050 in the weeks to come,” says Axel Rudolph in his Bullion Weekly for Luxembourg’s Commerzbank.
UK buyers saw gold slip to a one-week low of £710 an ounce in morning trade Wednesday.
The Euro-price traded 3% below last week’s record peak, turning higher from €804 an ounce.
“I hate living in a world where gold is the only security remaining, but people have lost optimism, and I do not see anything to break this trend,” said Peter Munk, founder and chairman of the world’s largest gold producer, Barrick Mining, at an investor meeting in Zurich on Tuesday.
“What drives gold is a changing world,” Munk is quoted by the Tages Anzeiger newspaper.
“We sit here at the beginning of a new world.”
Greek schools, airspace, ports, trains and government offices were closed Wednesday as “hundreds of thousands” civil servants took to the streets in protest against the government’s austerity program, aimed at cutting the budget deficit from almost 13% to 8% of gross domestic product over the next 12 months.
Germany also breached Eurozone deficit rules in 2009, new data showed today, with government spending exceeding tax receipts by 3.3% of GDP.
“This year it is going to go up quite a bit, to 6% or just below,” reckons Goldman Sachs’ chief economist in Frankfurt, Dirk Schumacher, because “Unemployment will increase further.”
Spanish banks BBVA and Santander saw their shares fall towards new 7-month lows after Barclays Capital analysts downgraded their outlook to “[reflect] market concerns for a more severe and prolonged downturn in Spain.”
Fitch Ratings declared a complex €200 million mortgage-backed security originated by Germany’s Hypo Real Estate to have triggered an “event of default”, saying it expects Euromax IV “to be the first of several” such European structured finance notes to breach their terms.
Reuters says the European Central Bank is planning to extend its unlimited loan facility for Eurozone banks when it meets next week.
“It all depends on how market conditions develop, nothing has been decided yet,” the newswire quotes its un-named source.
Heavy sellers of their “Legacy” Gold Reserves from the late 1980s to 2008, West Europe’s central banks have virtually halted their bullion sales according to new data from the mining-financed World Gold Council.
Excluding the International Monetary Fund’s gold sale of 213 tonnes – made to India, Sri Lanka and Mauritius between Oct. and Nov. – signatories to the latest Central Bank Gold Agreement have sold only 1.6 tonnes of gold since Sept.
The 18-member agreement limits total gold sales to 400 tonnes per year until 2014. It says IMF sales will be “accommodated within the ceilings.”
The IMF said last week it wishes to sell a further 191 tonnes of gold in the open market as part of a refinancing program agreed before the global banking crisis spread to sovereign governments, thus reviving the Washington body’s role as advisor and lender of last resort.
“It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility,” said an official from the China Gold Association to the China Daily today.
Speaking on condition of anonymity, he said China would continue to buy gold direct from its domestic gold mining industry – now the world’s No.1 by volume.
“The RBI doesn’t want to take a credit risk as there are concerns on the Dollar and Euro now,” said an un-named official at the Reserve Bank of India to Reuters early on Wednesday.
“Gold is a safe bet…We buy at market prices [and] are closely looking at the gold market.”
The world’s No.1 consumer market for physical gold, Indian household demand “enjoyed a solid recovery [after] an extremely weak first quarter” in 2009, says the World Gold Council, analyzing data from London’s GFMS consultancy – the leading information providers for the global gold industry.
Unlike China, India has almost no domestic gold mining output.
India’s private-household gold demand rose 13% by volume and 57% by value between Oct. and end-Dec. from the same period in 2008, say the GFMS figures.
During full-year 2009, mainland Chinese households grew their physical gold demand 9% by volume and 22% by value. Gold investment demand for bars and coins surged 37% to equal $2.5 billion.
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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