By: Adrian Ash, BullionVault
London Gold Market Report
THE WHOLESALE LONDON PRICE of physical gold held onto this week’s early rise again on Wednesday, pushing back above $1400 per ounce as world stock markets fell and crude oil rose to new two-year highs as fresh anti-government protests hit the Gulf state of Bahrain.
More gunfire was reported in the Libyan capital Tripoli, but eastern cities enjoyed “delirious celebrations” at the demise of Colonel Gaddafi’s forty-year regime, according to the BBC.
King Abdullah of Saudi Arabia – jointly the world’s biggest oil producer alongside Russia, and immune so far to civil unrest – returned from 3 months of medical treatment abroad to announce a near US$38 billion package of housing projects, pay rises and unemployment insurance.
“We have to appreciate that in the west, what is happening in Egypt and North Africa results in stagflation in the short term,” says Dr. Mohamed El-Erian, CEO and chief investment officer at US bond-fund giant Pimco, writing in the Financial Times.
“Because of higher oil prices,” warns El-Erian, stagflation in the rich West means “higher inflation and lower growth that take away purchasing power and transfer wealth somewhere else.”
“Taking advantage of the rise in the price of oil and its effect on the Russian economy,” says the FT, Russia will launch a 7-year Ruble-denominated government bond on the European money markets tomorrow.
Moscow was the world’s heaviest gold buyer for its central-bank reserves throughout 2010.
“Should Brent crude oil reach $110 per barrel,” writes Walter de Wet at Standard Bank today, “the world would be paying almost 6% of global GDP towards oil – well above the 2-3% level seen between 1985 and 2005.”
The US Dollar fell on Wednesday, as did US Treasury bonds, ahead of today’s $35 billion sale of new 5-year debt and Thursday’s $29bn sale of 7-year debt.
Back in precious metals, “There [was] still bargain hunting [in gold] at the lower end,” Reuters quotes Ronald Leung of Lee Cheong Gold Dealers in Hong Kong.
“This Middle East crisis won’t be easily solved in a short time. There are so many nations involved.”
South Korea’s banking run continued, meantime, with the closure of the 8th lender this week closing.
Middle East and North Africa region accounted for almost 70% of South Korea’s total construction project orders in 2010 according to the government’s trade and investment agency.
Wholesale Asian gold trading “was more orderly but directionless” says another Hong Kong dealer, with Tuesday’s “enthusiastic” buyers content to sit on their new positions.
“My concern is the [US-listed gold-backed] ETF” trust fund, says a Singapore trader. “The volume is not picking up.”
The SPDR Gold Trust yesterday shed another 5 tonnes of gold bullion, taking its holdings down to a 9-month low of 1218 tonnes as investors pulled money out.
Silver ETF holdings have also been falling, with the Silver iShares Trust ending last night with 6.2% less metal than it held the previous Tuesday.
“If this is the start of a correction [in Silver Prices] we see good buying interest toward previous January high 31.23,” says the latest technical analysis from bullion bank Scotia Mocatta.
Silver prices today rose back above $33 per ounce, but held more than 3% shy of Tuesday’s new 31-year highs.
“We must make policy based on the best available [inflation] forecast, learning from our past mistakes, and not be tyrannized by popular fears or spectres of expectations,” said career US academic Adam Posen – who voted for the fifth month running to increase the Bank of England’s quantitative easing program at this month’s meeting – in a speech on Tuesday.
For three of his eight colleagues on the monetary policy committee, however, “the case for removing some monetary stimulus at this month’s meeting was compelling,” minutes from the 10th Feb. decision showed.
Martin Weale and fellow academic Andrew Sentance were joined by senior Bank insider Spencer Dale – ex-advisor to the US Federal Reserve and former secretary to governor Mervyn King – in voting for a hike in rates.
Sterling was little moved by the news, holding the gold price for UK buyers just below £865 per ounce.
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 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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