London Gold Market Report
THE SPOT MARKET gold price traded just below $1700 an ounce for most of Tuesday morning in London – over 4% up on its low last week – before heading lower just ahead of the US markets open as the US Dollar regained some of the ground it lost on Monday following comments by Federal Reserve chairman Ben Bernanke.
The silver price rose to $33.25 per ounce – a 6.8% gain since its week’s low last Thursday – before it too eased.
The US Dollar Index, which measures the Dollar’s strength against other major currencies, hit its lowest level since the start of the month Tuesday. Longer-dated US Treasuries dipped, while European government bonds gained despite warnings that the sovereign debt crisis has not been resolved.
European stock market gains were relatively muted Tuesday morning, compared to those of the preceding Asian and US sessions, while commodities were broadly flat.
Yesterday saw the gold price move back above its 200-day moving average – which by PM London Fix prices stood at $1682 per ounce Monday afternoon in London – after Bernanke spoke of the need for “continued accommodative policies” and said that the labor market “remains far from normal” despite recent signs of improvement.
“Bernanke was back on solidly dovish ground again,” say Standard Bank currency analysts Steve Barrow and Jeremy Stevens.
“Rightly, or wrongly, the market seems to think that his comments could imply another loosening of [policy] via some form of QE3,” they added, referring to the possibility of a third round of quantitative easing.
“Fed likely to hint at QE3 in April meeting,” said Bill Gross, managing director of world’s largest bond fund Pimco, via the fund’s Twitter account.
Physical gold demand meantime “has shot higher as demand from South-East Asia in particular increased with gold below $1,650 over the past few days, no doubt providing support to the gold price when investor sentiment turned bearish,” says Walter de Wet, commodities strategist at Standard Bank, citing the bank’s Gold Physical Flows Index.
Over in New York, the world’s largest gold ETF, the SPDR Gold Trust (GLD), added 6 tonnes to its gold holdings yesterday.
Also in New York, today sees the expiry of April options on Comex gold futures contracts, with a lot of open interest – both bullish and bearish – clustering around the $1700 an ounce mark. The last options expiry date on 23 February saw gold prices jump to a then 3-month high.
Economic growth meantime “is stalling” in Europe, according to Angel Gurria, secretary-general of the Paris-based Organisation for Economic Co-operation and Development.
“Market confidence in the Euro area is fragile,” says the OECD’s ‘Economic Survey of the Euro Area 2012, published today.
“The outlook for growth is unusually uncertain and depends critically on the resolution of the sovereign debt crisis.”
Eurozone finance ministers are due to meet this Friday where they are expected to agree an increase in the size of the single currency’s so-called ‘firewall’ by combining the existing temporary bailout fund with the new permanent one that launches in July, after Germany dropped its opposition to such a move.
“Everybody knows [the combined fund] is not going to be big enough,” says Robert Crossley, head of European rates strategy at Citi.
“But less inadequate is a good thing.”
“The Eurozone remains insolvent,” adds Jim Leaviss, head of retail fixed income at M&G Investments.
“Growth is still a problem.”
Germany’s Deutsche Bank meantime has overtaken France’s BNP Paribas to become Europe’s largest bank, as a result of adding to its assets while other banks have been shrinking their balance sheets, according to newswire Bloomberg.
The likelihood that the German government would support its largest bank in the event of a crisis was cited by Fitch in December when the ratings agency gave Deutsche a stable outlook.
“We haven’t solved the too-big- to-fail challenge in this country,” says Ralph Brinkhaus, a member of Germany’s finance committee as well as chancellor Angela Merkel’s CDU party.
“That problem becomes all the more a matter of concern the bigger the bank is…and in the case of Deutsche Bank, is becoming.”
A Morgan Stanley co-authored report has suggested that banks worldwide will look to reduce the size of their balance sheets by $1 trillion over the next two years.
Here in the UK, Abu Dhabi’s ruling family is in talks with the British government about buying a stake in the 83%-taxpayer-owned Royal Bank of Scotland, news agency Reuters reports.
The gold price could “peak at well over $2000” an ounce, Mark Cutifani, chief executive of gold mining firm AngloGold Ashanti said Tuesday.
Turkey’s central bank today raised the proportion of domestic currency reserves Turkish banks can hold as gold from 10% to 20%, while simultaneously lowering the proportion for foreign exchange reserves from 10% to zero.
Turkey is one of a number of countries facing current account deficits and exchange rate problems that have recently turned their attention to gold.
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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