Bullion Rises in “Very Thin” Trade as ECB Cuts Rates, €200Bn Central-Bank Loan Rumored Ahead of EU Summit
London Gold Market Report
THE WHOLESALE gold and silver price both continued to rise in London on Thursday morning, recovering the week’s earlier losses despite what dealers called “lethargic”, “thin” and “quiet” trade ahead of tomorrow’s political summit aimed at rewriting European Union treaties to boost confidence in the Eurozone.
European stock markets also ticked higher, and the Euro recovered an early half-cent drop below $1.34, after the European Central Bank cut the 17-nation currency zone’s main interest rate by a quarter-point to 1.00% per year.
Ahead of the ECB’s monthly press conference – the second for new president Mario Draghi – gold prices flickered around €1300 per ounce and held above $1742 per ounce for Dollar investors.
The Silver Price pushed up to $32.80 per ounce by lunchtime in London, rallying more than 3.7% from Tuesday’s 1-week low.
“Volume is disappearing from the precious metals market ahead of [tonight's] European summit,” said one Hong Kong bullion dealer overnight.
“Very thin volumes in the gold market,” agrees a dealing desk here London. “The market remains reluctant to sell gold aggressively ahead of…Friday.”
Gold holdings in the giant SPDR Gold Trust ETF slipped 3 tonnes to a 10-day low of 1,295 tonnes on Wednesday.
Holdings for the SLV Silver ETF added 30 tonnes, however, reach the largest level in more than 3 weeks at 9,726 tonnes.
“Given its lack of inherent drivers, we see silver continuing to trade as a higher-beta version of gold in the short to medium term,” said UBS precious metals strategist Edel Tully in a note yesterday.
“[Silver] trading is likely to be characterised by shorter-term plays by more gutsy investors.”
“Depressed base metals and crude tempered silver’s gains on [Wednesday],” says a note from bullion bank Scotia Mocatta in New York.
On a technical chart analysis, “The silver price is once again being supported by the 3-month support line,” writes Commerzbank’s Axel Rudolph in his latest client report.
Unless the silver price rises through $35.71 per ounce, however, “the $30.00 support zone (psychological level, mid-October low…) should remain in focus,” Rudolph reckons.
“Failure here will indicate that a new down leg is under way.”
Speaking ahead of meeting European Union political leaders yet again to discuss an urgent resolution of the Euro currency zone’s debt crisis, “The summit that we are going to starts tonight in Brussels is indeed a crucial one,” said president of the European Commission Jose Manuel Barroso on Thursday.
“What I expect from all heads of governments is that they don’t come saying what they cannot do but what they will do for Europe. All the world is watching us and what the world expects from us is not more national problems but European solutions.”
“Should the Euro explode…that would be a catastrophe not only for Europe and France but for the world,” said France’s minister for Europe Jean Leonetti to Canal+ television this morning.
But responding to the widely-leaked Franco-German proposals for closer fiscal ties in the 330-citizen Eurozone, “Automatic sanctions are a joke. Fiscal union needs collective, democratic decision-making that can respond to challenges & manage agg. [aggregate] demand,” said EU social affairs commissioner Laszlo Andor on Twitter.
Preparing to attend the meeting, British prime minister David Cameron said he was “very focused” on getting “safeguards [and] the best deal for the UK” – the second largest economy in the European Union after Germany, which fell out of the pre-Euro exchange-rate mechanism in 1992.
Non-Euro members will contribute a further €50 billion to a planned €150bn loan from Eurozone countries to the International Monetary Fund, an un-named EU official is quoted by the Associated Press, with the money then passed – through the IMF, to avoid breaching EU treaties – to distressed debtor states.
“The money would come from the central banks of the 17 Euro nations, not the governments, which are already highly indebted,” according to the diplomat.
“When is a €2.4tn balance sheet not enough?” asks the Lex column in today’s Financial Times. “When you are the lender of last resort to a banking system in quite such straits as that of Europe. It is time for the European Central Bank to bulk up its books yet again.”
But “we think it is very unlikely,” counters Steven Barrow, chief currency strategist at Standard Bank. “With any luck, the ECB is still getting to a point where it will act as a lender of last resort for governments but, even after this week, it might not be as close as the market thinks – and that could mean more divergence in Eurozone bond markets.”
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 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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