London Gold Market Report
The WHOLESALE MARKET gold price fell further on Thursday in London, hitting its lowest London Gold Fix since 8th July at $1537.50 per ounce – 19% below Sept’s record high – on what dealers called “long liquidation” and “pressure” from the Eurozone debt crisis.
New laws in Japan were also blamed for forced sales during Asian trade, with bullion dealers obliged to report all physical transactions above ¥2 million ($25,600) to the tax authorities starting New Year’s Day.
Physical gold bullion flows in Europe are “very light – unsurprisingly for this time of year,” says Swiss refinery and finance group MKS.
“[A] few accounts [were seen] bailing out on the break of $1570” on Wednesday, MKS says, with “the rest of the move driven by illiquidity and forced sellers pushing themselves out as they push [the gold price] lower.”
On a closing-price basis, “Support sits at the trendline off the October 2008 low, currently at $1543,” says Russell Browne’s technical analysis for Scotia Mocatta, pointing to the uptrend in the gold price starting with the collapse of Lehman Brothers 3 years ago.
That support level is “followed by the September [2011] low around $1533,” reckons Browne.
The Euro sank 1.5¢ on Wednesday after new data showed the European Central Bank’s balance-sheet swelling to €2.7 trillion last week on making the first of its “unlimited” three-year loan offers to commercial banks.
Thursday morning the single currency fell again to a 10-year low against the Japanese Yen.
“The market reaction is slightly incomprehensible,” reckons economist Jens Kramer at Germany’s NordLB in Hanover. “After that record liquidity injection it would follow that the balance sheet would swell.”
European stock markets crept higher this morning after finishing yesterday lower, but in the banking sector “The main problem…is not a lack of liquidity, but a lack of trust,” says Commerzbank’s Christoph Rieger, head of fixed-income strategy in Frankfurt.
“There are no central bank tools that would force banks to extend credit lines among themselves.”
“The interbank market remains broken,” agrees Richard McGuire at Rabobank’s London office, also speaking to Bloomberg.
“The amount of peripheral government debt banks hold raises questions about counterparty risks.”
Pushing higher on its official “benchmark” level again on Thursday, the interbank lending rate known as LIBOR is now suffering the widest gap between the lowest and highest interest rates charged since the peak of the first financial crisis in March 2009.
After Wednesday’s surprising low interest rate charged by investors to hold new short-term Italian debt, the yield demanded on a fresh €7 billion of 10-year bonds stayed high, just two basis points below the 7.00% level which analysts believe is “unsustainable”.
“We maintain that a liquidity squeeze brought on by the ongoing debt problems in the Eurozone would be one of the greatest threats to commodities,” says Marc Ground at Standard Bank today.
“Gold, along with the other precious metals, succumbed to the downward pressure from concerns over Eurozone liquidity.”
“Risk-off conditions in the short term are putting pressure on the gold price,” says another London dealer in a note, “but plenty of the insurance reasons to be long of gold remain in place – and look set to remain so in January.”
Silver prices today flirted with 12-month lows beneath $26.80 per ounce, as base metals fell with agricultural commodity prices.
US crude oil held just shy of $100 per barrel as the US Navy warned Tehran it will “not tolerate” any disruption of shipping through the Strait of Hormuz, which Iran has threatened in retaliation at new international sanctions.
Ten-year UK government bond yields slipped again below 2.00% – the record low breached for the first time ever last week.
Adrian Ash
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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