By: Adrian Ash, BullionVault
London Gold Market Report
BOTH GOLD and physical silver prices failed to hold onto a sharp overnight bounce in London trade on Friday, trading below $1404 and $33 respectively per ounce as volatility in crude oil remained at record levels but world stock markets rose for the first day in six.
The US Dollar snapped its 7-day losing streak, bouncing against the Euro, Sterling and Yen and leaving gold prices for non-Dollar investors slightly higher again.
Colonel Gaddafi’s crackdown on anti-government protests in Libya was “escalating alarmingly” meantime, said the United Nations, with perhaps 1,000s dead in a near-civil war.
Food prices rallied from a four-day drop as Bangladesh and Japan both moved to secure supplies of rice.
“[Economic] demand is now recovering at home and abroad – quite strongly in some areas, and inflation is now a much bigger worry than deflation,” said Bank of England policy-maker Andrew Sentance in a speech last night outlining “10 good reasons to raise”.
Sentance has been out-voted 8-to-1 by his colleagues every month since he began calling for higher rates last June.
The UK today revised its end-2010 economic decline from the 0.5% first estimated to a 0.6% contraction.
Rumors that Colonel Gaddafi had been shot dead saw crude oil, gold and silver prices all slump late Thursday in New York.
Commodity-trading exchanges the Nymex and ICE also raised the margin payments needed to continue betting on oil prices – currently heading for a 13% weekly rise, the fastest gains since Feb. 2009.
“Those declines have proven to be a good buying opportunity,” said one London metals dealer early on Friday. But by lunchtime, however, both gold and silver prices had eased back from their sharp recoveries, cutting their week-on-week gains to 1.0% and 0.1% respectively.
“It goes without saying, should the tension in the Middle East spiral out of control, and spread further throughout the region, our [Gold Price] target of $1500 may be reached must earlier than [the summer],” says today’s commodity note from Standard Bank in London.
“Gold is witnessing a strong upward trend,” says Filippo Finocchi on the trading desk at Italpreziosi in Arezzo, Italy. “But if the tensions in Libya should ease, the current level could be ideal for a start of a new corrective phase.”
Even as near-term crude oil contracts rallied on Friday, far-dated contracts held onto their sharp falls in early trade, suggesting “either a big unwind or the beginnings of pessimism about sustained demand strength” in the global energy market according to Sean Corrigan at Diapason Commodities in Switzerland.
Prices for crude-oil contracts due to settle after 2012 were lower on Friday morning than they were before the Middle East unrest and uprisings began, notes the FT‘s Alphaville blog.
“Everyone’s just being super-cautious,” Reuters today quotes a prime broker servicing the hedge-fund sector, which hasn’t yet taken an aggressive stance on the oil market.
“It’s a little like the financial crisis in 2008. Many managers are saying, ‘How am I supposed to figure this one out?'”, says Morten Spenner at fund of fund managers International Asset Management.
Noting the 1.75% and 0.75% rise in Indian and Chinese interest rates in recent months, “If monetary tightening continues across the developing world we would expect to see physical demand for gold from emerging countries slacken as the year progresses,” says French bank Natixis’ latest Commodities Weekly report.
The London bullion dealer’s analysis team also note India’s new policy of encouraging rural households to open bank accounts through mobile phones (so-called “m-banking”), saying that “Were these policies to continue, it would not be unreasonable to expect Indian demand for gold to suffer.”
Indian gold demand leapt two-thirds by volume and 106% by value to all-time record levels in 2010 according to latest data from market-development group the World Gold Council.
China’s private household demand for physical gold rose 29% by volume and 62% by Dollar value, also hitting new record highs.
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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