London Gold Market Report
U.S. DOLLAR gold bullion prices climbed to $1637 an ounce Friday lunchtime in London – 2.0% up on this week’s low – while stocks and commodities also rallied despite ongoing uncertainty over plans to solve the Eurozone crisis.
“Gold is starting to garner some interest as some participants start to view current prices as good entry levels,” says Marc Ground, commodities strategist at Standard Bank.
“Is gold going to get back up to the highs?” asks Credit Agricole analyst Robin Bhar.
“That’s looking less certain now. It’s not on the agenda, although you can never say never.”
Despite Friday’s rally, gold bullion looked set for its first weekly loss of the month – 2.6% down as we headed into the weekend.
Silver bullion meantime rallied to $31.13 per ounce – though still a 3.4% drop for the week.
European leaders have scheduled a second meeting next week – in addition to this weekend’s European Union economic summit – stating that there is not enough time to finalize an agreement by Sunday.
German chancellor Angela Merkel also cancelled a speech she planned to give to the Bundestag Friday, which was to include details on proposals for the European Financial Stability Facility – the Eurozone’s ad hoc bailout fund set up last year.
“Without any concrete proposal for increasing the efficiency of the fund the chancellor can’t present a complete set of proposals,” explained Bundestag member Norbert Barthle, a member of Merkel’s Christian Democratic Union party.
European governments are set to allocate as much as €940 billion to fighting the crisis, news agency Bloomberg reported Friday.
“The market wants the Euro crisis solved yesterday,” says Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York.
“Politicians and finance ministries seem to be saying “yes we can, but no we won’t”…Europe has the wealth…it is just that the process is incredibly complex.”
Reports suggest France favors turning the EFSF into a bank – which would allow it to access European Central Bank funds. German, in contrast, is said to prefer using EFSF money to insure a portion of ‘first losses’ on debt issued by troubled sovereigns.
“This clearly creates the prospect of a two-tier market with guaranteed debt trading at a premium to noninsured paper,” says Steve Barrow, research analyst at Standard Bank.
“[This] is not a way out of the crisis in our view.”
“[There is a] risk, ” adds Huw Pill, chief European economist at Goldman Sachs in London, “that the post- summit announcements will suggest an ambitious program at a high level but lack concrete detail on implementation…given previous experience, markets are unlikely to be very tolerant of such an outcome.”
“With this weekend’s meeting now apparently redundant,” adds one gold bullion dealer here in London, “and with the prospect of decisive action effectively postponed until the middle of next week, it seems likely that markets will tread water and play it cautiously as we enter the weekend.”
Elsewhere in Europe, the European Securities and Markets Authority is considering suspending sovereign credit ratings for countries that have been granted a bail out, the Financial Times reports.
“It is not the thermometer that causes the fever,” conceded Michel Barnier, European internal markets commissioner.
“But the thermometer has to work properly to ensure you do not exaggerate the fever.”
Barnier this week welcomed a European Parliament agreement to seek a ban on so-called naked positions in sovereign credit default swaps – whereby traders buy a CDS to profit from a sovereign default without owning the bonds issued by that government.
These regulatory proposals follow the ban on short selling of financial stocks imposed by France, Spain, Italy and Belgium in August – a ban that remains in place.
Rating agency Standard & Poor’s meantime has released the results of new stress tests it conducted for a number of Eurozone sovereigns. The stress tests looked at two scenarios: a double dip recession, and a double dip recession accompanied by a spike in interest rates.
“Sovereign ratings on France, Spain, Italy, Ireland, and Portugal likely would be lowered by one or two notches under both scenarios,” said an S&P statement.
Over in India – the world’s biggest market for gold bullion – gold dealers have stepped up their purchases of bullion ahead of next week’s festivals, including Diwali, news agency Reuters reports.
“Buying has started and come out in huge quantities,” says Haresh Acharya, head of the bullion desk at Parker Bullion in Ahmedabad.
“There are good buy orders close to $1,600,” adds a Mumbai-based dealer at a state-run bullion bank.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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