Trading “Pretty Quiet” with US Markets Closed Again, Japan Extends QE, President Romney “Would Be Bad News for Gold”

October 31st, 2012 No Comments   Posted in Gold

London Gold Market Report

THE SPOT MARKET gold price traded just below $1715 an ounce during Tuesday morning’s London session, little changed from last week’s close, while European stock markets recovered their losses from a day earlier and UK and German government bond prices fell.

“Downside targets will be in focus while the gold price stays below the 17 October high at $1753.86,” says Commerzbank senior technical analyst Axel Rudolph.

The silver price climbed above $32 an ounce shortly after London opened, holding above that level for most of the morning, while other commodities were broadly flat.

Markets in the US are due to remain closed for the second day running as a result of Hurricane Sandy. Monday’s trading saw gold futures volumes “far below normal”, one analyst said, with another adding the market remained “pretty quiet” on Tuesday morning.

Press reports suggest that this Friday’s US nonfarm payroll report could be delayed as a result of the storm.

The Bank of Japan meantime increased the size of its quantitative easing program Tuesday for the second time in as many months, from ¥80 trillion to ¥91 trillion. Of the additional ¥11 trillion, ¥10 trillion will be used to buy government debt while the remaining ¥1 trillion will be put into riskier assets, with half being earmarked for exchange traded funds.

The Yen rallied nearly 1% against the Dollar immediately after the decision, while the Yen gold price fell by 1%.

“Most people had forecast and priced in further easing this time,” said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo, shortly after the decision was announced.

“Investors are selling to lock in profit after the announcement, learning lessons from September, when a rally lasted for only a few hours.”

The BoJ “aims to achieve its goal of 1% [inflation]” said a statement issued jointly by the central bank’s governor and Japan’s finance and economy ministers.

“The government strongly expects the Bank to continue powerful easing,” it added.

“The question that inevitably arises,” says Neil Mellor, senior currency strategist at BNY Mellon, “is to what extent government pressure, and the presence of economy minister Maehara, influenced the decision?”

Here in Europe, Spain’s economy shrank by 1.6% year-on-year in the third quarter, the fifth successive quarter of contraction, according to official GDP figures published Tuesday.

Spain’s parliament is to invite European Central Bank president Mario Draghi to discuss the Outright Monetary Transactions program he announced last month, Reuters reports.

Under OMT, the ECB could buy sovereign debt on the open market conditional on the beneficiary country being in a bailout program.

A victory for Mitt Romney in next week’s US presidential election would be bad for the gold price, according to an article published by the Financial Times today.

“[Romney] would replace Ben Bernanke with a more hawkish chairman of the Federal Reserve when the latter’s term expires in January 2014,” the FT’s Jack Farchy writes.

“If that means a change in direction from the Fed’s current experimental and super-accommodative monetary policy, gold could suffer.”

“The Dollar might strengthen regardless of the election result,” says Matthew Turner, precious metals strategist at Mitsubishi.

“Political uncertainty would be reduced if there is a clear election victory.”

“Should Mitt Romney win, the attitude towards monetary measures is…likely to change ” says a note from gold bullion refiner Heraeus.

“In the short term [though] we still expect that [gold] falling below $1700 an ounce would fuel fresh purchases.”

Ben Traynor

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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Indian Gold Demand “Surprisingly” Absent as “Bearish Trend” Remains

October 27th, 2012 No Comments   Posted in Gold

London Gold Market Report

U.S. DOLLAR gold prices traded just above $1700 an ounce throughout Friday morning in London, following an overnight reversal of yesterday’s rally, while European stock markets traded lower this morning following losses in Asia, ahead of the release of US GDP data later today.

“The trend remains bearish so long as gold trades below $1723,” says the latest note from Scotiabank technical analyst Russell Browne.

“People are still looking a bit at the downside rather than the upside for the time being, waiting for it to break $1700,” adds Ronald Leung, director at Lee Cheong Gold Dealers in Hong Kong.

Silver prices traded just above $31.70 per ounce for most of the morning, 1.2% down on last Friday’s close, while other commodities also edged lower and major government bond prices gained.

“Commodities have come under renewed pressure, owing to the Asian equity markets weakening in the face of disappointing corporate data and a stronger US dollar,” says a note from Commerzbank.

The US Dollar Index, which measures the Dollar’s strength against a basket of other currencies, hit a new seven-week high this morning.

Dealers in Asia meantime reported a quieter session this morning, with public holidays in Singapore, Malaysia and Indonesia.

“There’s light buying from Thailand and that’s about it,” one dealer told newswire Reuters this morning.

“Surprisingly, the demand from India is not there…in fact, Indian consumers started to sell again when the market was a bit higher. Maybe they will leave it to the last minute [before next month's Diwali festival] before coming back to buy again.”

Going by London Fix prices, gold looked set for a third straight weekly loss Friday lunchtime in London, the first time this has happened since March.

“We continue to see modest pressure on gold prices in the near term,” says HSBC precious metals analyst James Steel.

Here in Europe, Spain’s unemployment rate rose to 25% in the third quarter, a new record high, according to official data published Friday.

Santander, the country’s biggest bank, yesterday urged the government to seek a formal bailout, which would pave the way for the European Central Bank to buy Spanish government bonds through its Outright Monetary Transactions program.

“A situation in which the Treasury funding is being helped by contingency credit lines offered by any international body will produce a fall in the sovereign debt risk premium and, as a consequence, a fall in banks’ risk premium,” said Santander chief executive Alfredo Saenz.

A Spanish bailout however is “a necessary, but not a sufficient condition” for ECB bond market intervention, ECB Executive Board member Joerg Asumussen said Friday.

Spain has already agreed a credit line of up to €100 billion from Eurozone rescue funds to finance the restructuring of its banking sector.

Elsewhere in Europe, ratings agency Standard & Poor’s last night downgraded French bank BNP Paribas by one notch, from AA- to A+. Ten other French banks, including Credit Agricole and Societe Generale, were put on negative outlook.

Nine more banks have been named as part of the ongoing Libor investigation. Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds, Norinchukin, Rabobank, Royal Bank of Canada, Societe Generale and West LB have all been sent subpoenas by the New York and Connecticut attorney-generals.

In South Africa, the majority of striking workers in the gold mining sector returned to work yesterday, Reuters reports, after unions agreed a wage deal with mine operators.

Anglo American Platinum meantime said Thursday it lost an estimated 138,000 ounces of platinum output, equivalent to over $200 million, as a result of South African strikes. The chief executive of Anglo American, which owns an 80% stake in Amplats, resigned Friday after leading the company for nearly six years.

In other mining news, African Barrick Gold lowered its 2012 production forecast Friday, when it also reported a 1.6% rise in cash costs per ounce as part of its third quarter results. China Gold is currently doing due diligence as part of its bid to buy Barrick Gold’s 74% stake in African Barrick.

Here in London, gold trading through London’s 11 market-making banks jumped 35% last month from August to the highest Dollar value since the all-time record gold prices of summer 2011.

The average daily volume of gold bullion transferred between wholesale market clearing members climbed 26% last month compared to August.

The daily average volume of silver bullion transferred increased 4% month-on-month in September.

Ben Traynor

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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Big Jump in London Gold Trading

October 27th, 2012 No Comments   Posted in Gold

Wholesale gold trading through London’s global center just leapt towards summer 2011′s records…

GOLD TRADING in London – heart of the world’s wholesale bullion market – leapt in September.

How come? “The continued economic uncertainty in the Eurozone and US, the end of the holiday period and the start of the Indian festival season boosted clearing turnover,” says trade body the London Bullion Market Association, releasing the new data to members on Thursday.

But matched by a sharp rise in the size of gold-backed trust funds traded on the stock market (ETFs), these latest figures really suggest strong interest from hedge funds, investment banks and other institutions around the US Federal Reserve’s announcement of QE3, we believe.

Why QE3 as the catalyst? Because the so-called “smart money” had been hanging on Ben Bernanke’s every word all year…willing him to make free and easy with his electronic printing press once again. And why that group? Because the other potential buyers just weren’t so hot – buyers whose demand would have quickly registered back up the supply chain at the wholesale level – and certainly not hot enough to push gold trading through its world center in London to the third highest value on record.

Jewelry suppliers in India have kept a lid on their stockpiling, even ahead of the annual peak in demand due with Diwali in mid-November. Private households (aka “retail” investors) raised their demand in September, but not dramatically, as Bullion Vault’s own Gold Investor Index shows. And amongst those central banks who declare their hand each month to the International Monetary Fund (ie, everyone but China), September 2012 saw them pretty much flat overall as a group.

So you have to guess, therefore, that the so-called “smart money” was the big buyer, helping drive the daily value of gold bullion traded through London’s 11 big market makers more than 35% higher in September from August to its highest level since summer 2011′s all-time peaks.

Those 11 market makers – led by global investment-bank and London vault operators HSBC and J.P.Morgan, and all guaranteeing to quote firm Gold Buying and selling prices throughout the day – shifted some $39.2 billion-worth of gold between them on average each day last month. Make a guess at all of September’s other gold trading done via smaller bullion banks and dealers, all still quoting prices for settlement in London’s secure and accredited vaults, and the total could have reached to $350bn. That’s the multple suggested by spring 2011′s market-wide survey, undertaken by the London Bullion Market Association on behalf of the World Gold Council.

The aim of that report, in which the LBMA surveyed all its members, was to gauge the true depth and liquidity of the physical gold market. The previous best guess-timate – of a multiple between 3 and 5 times the average daily turnover reported by the big 11 banks – now looks it should stand nearer 8 times. Especially when gold trading gets hot, as it clearly did in September.

Some of that hot money has turned tail since. This month’s pullback so far has taken Dollar-gold 4% lower to $1700 per ounce. Perhaps hedge funds, bank traders and other private institutions simply booked early profits off their September gold trading. Or perhaps they’re disappointed that QE3 didn’t instantly send inflation soaring.

Give it time. “There is a great deal of ruin in a nation,” as Adam Smith calmly replied when told in October 1777 that Britain was ruined by its defeat by the American rebels at Saratoga. Yes, it took another 170 years for the British Empire to crest and collapse. But today’s limitless zero-rate money won’t have anything like as long.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich and store it securely with insurance included for as little as $4 per month.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

So, Who’s Been Bidding Gold Higher?

October 4th, 2012 No Comments   Posted in Gold

A unique, innovative tool for seeing just what private investors are doing in gold…

GOLD was up, up and away in September. But who was doing the buying?

New data we released today here at BullionVault show that private households across Western Europe and the US continue to join the bull market. But their response to QE3 and the latest phase of the Eurozone crisis is more measured – you might even say complacent – than the recent price action alone suggests.

“There has until now been a lack of hard data on self-directed retail investors in gold,” said Marcus Grubb of the World Gold Council, which is a shareholder in BullionVault, at today’s launch here in London of our new Gold Investor Index.

“For instance, the data we produce [the excellent Gold Demand Trends] is more at the macro level, including institutional and private wealth management. This new Gold Investor Index is a real innovation – a unique and useful addition to the data already available. It’s a coincident indicator of what private households are choosing to do with regards to physical gold.”
How so? BullionVault’s new Gold Investor Index is a monthly data point based on actual trading on BullionVault, the world’s largest provider of physical gold ownership to private investors. Since launch in April 2005 it’s now been used by more than 42,000 private investors from 159 countries worldwide.

Almost 90% of BullionVault users live in the UK, US or Eurozone. So the Gold Investor Index shows what the largest pool of private gold investors in the developed Western world is doing with its metal – either buying more or selling, or choosing to sit tight. They can all make that decision as they choose using BullionVault’s peer-to-peer exchange online, a truly international market in physical bullion which is accessible to people all over the world. You will not find a more reliable guide to the wider retail-investment market in physical gold.

How does BullionVault’s Gold Investor Index work? First, it takes the balance of net buyers (who added to their holdings, and so includes new entrants) versus net sellers over the last calendar month. The index then shows that figure as a proportion of all existing gold owners to give a comparable series over time. The index is rebased so that a perfect balance of buyers and sellers would give a reading of 50.0.

In September this year therefore, and as the chart shows, self-directed investors in the West grew more bullish on gold. Rising from August’s reading of 52.1 to 52.5, however, the Gold Investor Index still lagged levels seen earlier this year, and it was well below the series-record to date – the level of 71.7 hit in September 2011.

So, September 2012′s reading on the Gold Investor Index undoes any talk of a “gold bubble” amongst Western households. Because the private investor response to QE3 and the latest phase of the Eurozone crisis is far more measured than the last time gold prices reached their current level. This may give succour to central bankers and other policymakers hoping to buy time. The index suggests households are less anxious about inflation or a currency crisis than bank analysts and managed wealth advisors.

It’s hard to find any gold bears amongst professional investors right now. Amongst self-directed retail investors too, sentiment towards gold is bullish. But hard transactional data from the world’s largest pool says they’re not as bullish – in aggregate – as they were earlier in the year. And sentiment towards gold is way below the moments of extreme investor stress seen previously in this financial crisis, such as late-summer 2011.

The new Gold Investor Index confirms what we’re hearing from our friends and contacts in the coin and small-bar business. Sales have been lacklustre since spring. That may change, however, if the UK’s over-valued Pound, the Eurozone’s unceasing crisis, and the US fiscal cliff crash into each other towards New Year. Either way, the new Gold Investor Index will clearly show how private investors respond.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Hovers After Touching New Highs, Gold Allocation “Part of Diversified Portfolio” says Pimco

October 3rd, 2012 No Comments   Posted in Gold

London Gold Market Report

WHOLESALE gold prices hovered in a tight range just below $1780 an ounce for most of Tuesday morning in London, just below a new 2012 spot market high touched yesterday following comments from US Federal Reserve policymakers.

Silver prices traded just below $35 per ounce, close to seven-month highs, while stocks and the Euro ticked higher despite warnings that Spain is underestimating the amount of recapitalization its banks need.

Commodities were broadly flat, with copper showing some strength, while major government bond prices fell.

A day earlier, Dollar gold prices touched a new 2012 high at $17971 per ounce during Monday’s US session, while the gold price in Euros set a fresh all-time record at €44,583 per kilo (€1386 per ounce).

“The gains were prompted by Fed President Evans’ comments that the quantitative easing measures adopted [by the Fed last month] did not go far enough,” reckon analysts at Commerzbank.

“On top of this, Fed Chairman Bernanke expressed concern about weak economic growth, making additional bond purchases a possibility… In a climate of ultra-loose monetary policies and the relentless Eurozone debt crisis, demand for gold as a store of value and alternative currency is likely to remain strong.”

“We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio,” say analysts Nicholas Johnson and Mihir Worah at world’s largest bond fund Pimco.

“The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.”

Holdings of gold backing the world’s largest gold ETF, SPDR Gold Shares (GLD), rose by nearly 2 tonnes to 1322.6 tonnes yesterday, the first day of the new quarter, though they remain 0.7% off last Tuesday’s all-time high.

Investment bank UBS meantime has said it expects a boost in physical gold trading volumes when China returns from a week-long holiday next week.

Spain’s banks could need up to €105 billion to absorb potential losses on their loans, according to ratings agency Moody’s. That’s more than last Friday’s €60 billion estimate and more than the €100 billion credit line Spain agreed with other Euro members in June.

“The recapitalization amounts published by Spain are below what we estimate are needed for Spanish banks to maintain stability in our adverse and highly adverse scenarios,” say Moody’s analysts Maria Jose Mori and Alberto Postigo.

“If market participants are skeptical about the stress test, negative sentiment could undercut the government’s efforts to fully restore confidence in the solvency of Spanish banks.”

Spain’s government meantime is ready to ask for a bailout to help fund public spending as soon as next weekend, although Germany would prefer it to wait, Reuters reports.

“It doesn’t make sense to send looming decisions on Greece, Cyprus and possibly also Spain to the Bundestag one by one,” a senior German source told the newswire.

“Bundling these together makes sense, due to the substance and also politically.”

Here in the UK, house prices are likely to be flat or modestly declining over the next 12 months, according to building society Nationwide.

Across the Atlantic, the Commodity Futures Trading Commission may now find it impossible to revive its plan to introduce a new “position limits” rule after the move was blocked in court last week, according to a Florida law professor.

On Friday, US District Judge Robert Wilkins ruled that the move was unnecessary in order for the CFTC to comply with the Dodd-Frank Act and rejected it.

“Even if Democrats win the White House, the rulemaking process will take years to complete and, my guess, the Democrat commissioners at the CFTC will probably have lost their appetite for this battle,” says Jerry W. Markham of the Florida International University at Miami.

“I am disappointed by [the] ruling,” CFTC chairman Gary Gensler said Friday.

“The Rule addresses Congress’s concern that that no single trader is permitted to obtain too large a share of the market, and that derivatives markets remain fair and competitive. I believe it is critically important that these position limits be established as Congress required….we are considering ways to proceed.”

Among the activity regulated by the CFTC is the trading of silver and gold futures and options on the Comex.

In South Africa, which has been hit by a series of strikes and protests and platinum and gold mining sites, the world’s biggest platinum producer Anglo American Platinum has said it will fire any striking workers who do not turn up to a disciplinary hearing today.

Ben Traynor

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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold ETFs Set New Record, Bullion Prices “Should Break Higher After Consolidation Period”

September 26th, 2012 No Comments   Posted in Gold

London Gold Market Report

SPOT MARKET gold bullion prices traded around $1765 an ounce Tuesday morning in London, 1.8% off last Friday’s seven-month high.

“It looks to me like we’ve got a short period of consolidation,” says Standard Chartered analyst Daniel Smith.

“[We'll see] maybe a month of sideways trading possibly and then generally trending higher in the next six months to a year.”

Stock markets were also broadly flat as major government bond prices gained, while the Euro recovered early losses ahead of a meeting between the leaders of Germany and the European Central Bank.

Tuesday also brought fresh news of central bank gold buying, while SPDR Gold Shares (GLD), the world’s biggest gold ETF, saw its gold bullion holdings hit a new record Monday at 1326.8 tonnes.

Overall gold ETF holdings tracked by newswire Reuters also hit a new record at 2294.3 tonnes.

Silver bullion held by the world’s biggest silver ETF, iShares Silver Trust (SLV), rose to just under 10016 tonnes yesterday, their highest level since September 2011.

“We still prefer to be buying gold on dips and believe the break higher will eventually come,” says Walter de Wet, commodity strategist at Standard Bank.

“But the futures market needs to lose some speculative length and the physical market needs to adjust to a higher price-range first.”

The aggregate positioning of Comex gold futures and options traders rose to its highest reported level since February last week, according to weekly data published by the Commodity Futures Trading Commission. October gold option contracts on the Comex expire later today.

On the supply side, London-listed pawnbroker Albermarle & Bond has announced a reduction in new store openings in the next financial year, citing a “sudden slowdown” in profit growth from buying and recycling scrap gold.

“We expect gold buying to continue to be a significant profit contributor…albeit at much reduced levels to that achieved at the peak,” chief executive Barry Stevenson said.

The firm plans to open five stores in the next financial year, compared to 25 opened in 2011-12.

Silver prices meantime climbed to $34.31 an ounce – 2.6% off last week’s high – while other industrial commodities also ticked higher.

“Silver is still within the recent range and we feel it is too early to call a reversal,” says the latest technical analysis from bullion bank Scotia Mocatta.

Over in Europe, German chancellor Angela Merkel and European Central Bank president Mario Draghi are due to meet today in Berlin, where they are expected to discuss the Eurozone crisis.

Spain’s deputy prime minister meantime has said she wants to see more details of the ECB’s unlimited sovereign bond buying program announced earlier this month.

“We need to know to what extent the ECB will intervene in the secondary market,” Soraya Saenz de Santamaria said Tuesday.

“To take decisions you need to have all the elements on the table.”

Spain sold €4 billion of 3-Month and 6-Month bills at auction this morning, with borrowing costs ticking higher from a month earlier.

Italy meantime sold €3.94 billion of 2-Year debt, compared with a maximum target of €4 billion.

Elsewhere in Europe, Switzerland’s central bank bought an estimated €80 billion of so-called core Eurozone sovereign debt in the first seven months of the year, according to a report published Tuesday ratings agency Standard & Poor’s.

“In our view, this has significantly contributed to the declining yields on bonds issued by the core sovereigns,” the report says.

Yields on 6-Month German Bubills have spent much of the year in negative territory, while 10-Year Bund yields have at times traded at less than 1.2%. By contrasts, Spain’s 10-Year government bond yields spiked above 7.7% in July.

Last year, the Swiss National Bank announced it was placing a floor under the Euro’s exchange rate with the Swiss Franc and would not allow it fall below SFr1.20. The SNB pledge “unlimited” currency purchases to support this peg.

The central banks of South Korea, Paraguay and Ukraine meantime all added to their gold reserves over the last two months, according to International Monetary Fund data published Tuesday.

Korea added nearly 16 tonnes of gold bullion in July, taking total reserves above 70 tonnes, while Paraguay’s holdings rose by 7.5 tonnes to 8.2 tonnes in the same month. Ukraine added just under 1.9 tonnes in August, taking official reserves to 34.8 tonnes.

Venezuela, which repatriated most of its gold last year, cut its holdings by 3.7 tonnes, taking the total to 362 tonnes.

Turkey’s central bank also reported a rise of 6.6 tonnes, although Turkey’s gold holdings include gold held with the central bank by commercial institutions as part of their reserve requirements.

China’s central bank injected a record 290 billion Yuan into financial markets Tuesday, ahead of a week-long public holiday next week.

Ben Traynor

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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

“Quiet Gold Market” Needs “Big Bang” from Policy, Germany “Unable to Keep Whole Eurozone Afloat”

August 15th, 2012 No Comments   Posted in Gold

London Gold Market Report

SPOT MARKET gold prices traded above $1610 an ounce Tuesday morning in London, slightly below where they started the week, while European markets edged higher following news of better-than-expected German economic growth.

Silver prices briefly rallied back above $28 per ounce before retreating, while other commodities were similarly flat on the day.

“Despite wide daily ranges for the past few weeks due to thin liquidity, the [gold] market remains pretty quiet,” says a note from Swiss bullion refiner MKS.

A day earlier, gold prices fell 1% as the Euro edged lower towards the end of Monday’s trading, after news of a second legal challenge to the creation of the Eurozone’s €500 billion permanent bailout fund the European Stability Mechanism.

Berlin economics professor Markus Kerber submitted an argument that the German Constitutional Court should delay a preliminary decision on the ESM, currently due for September 12, until the European Court of Justice rules on a similar complaint referred to it by the Supreme Court of Ireland.

The German Constitutional Court issued a statement Tuesday saying it does not plan to delay its ruling.

Germany’s economy meantime grew by 0.3% in the second quarter of the year – slower than in Q1, but stronger than many analysts expected – according to an initial estimate of gross domestic product published Tuesday.

“The German economy is fundamentally in good structural shape,” says Commerzbank chief economist Joerg Kraemer.

“But [it] can’t decouple from the recession in the Eurozone, plus the global economy has also shifted down a gear.”

French GDP was flat at zero percent in Q2, although many analysts were forecasting a slight contraction.

GDP for the Eurozone as a whole meantime shrank by 0.2% in the second quarter, data from Eurostat show.

“We do not think that Germany on its own can keep the entire Eurozone afloat,” says Aline Schuiling, senior economist at ABN Amro.

Here in the UK, consumer price inflation ticked higher last month to 2.6% – up from 2.4% in June – official figures published Tuesday show.

“It is important not to read too much into one month’s inflation figures,” says Howard Archer at IHS Global Insight.

“The overall trend in inflation currently remains down…nevertheless the move back up in consumer price inflation in July does raise concern that it may not come down as quickly as hoped for.”

“Concerns over inflation and potential monetary easing bode well for gold,” adds Barclays analyst Suki Cooper.

“[But] the metal is missing the support of a solid floor.”

Over in India, traditionally the world’s biggest gold buying nation, imports of gold bullion in 2012 could be down 30% compared to last year, according to Bombay Bullion Association president Prithviraj Kothari.

“Demand is very dull even though the festive season is just days away,” says Kothari.

“Even jewelers are opting to keep lower inventory,” adds one dealer in Mumbai.

“They are worried about slowing rural demand due to a drought.”

“Gold prices are holding up very well in the light of weak demand from the jewelry sector and from investors,” says Eugen Weinberg, head of commodities research at Commerzbank.

“That bodes well for a price increase that we expect for the end of the third quarter and the fourth quarter.”

“Policy expectations will determine the bulk of gold’s performance,” adds a note from UBS.

“Gold needs a ‘big bang’ to reignite investor interest, the likely culprit to be policy response from central banks, with US action the key.”

Ben Traynor

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Looking Set for Weekly Loss Ahead of Nonfarm Release, But Likelihood of Central Bank Action “Still Elevated”

August 6th, 2012 No Comments   Posted in Gold

London Gold Market Report

U.S. DOLLAR prices quoted for gold bullion on the wholesale market rose to $1596 an ounce during Friday morning’s London trading, recovering some ground following three days of losses, as stock markets also rebounded ahead of the release of US nonfarm payrolls data later today.

Silver bullion climbed back above $27.30 per ounce, in line with where it closed two weeks ago, while other industrial commodities also edged higher.

Heading into the weekend, gold bullion looked set for a 1.7% weekly loss by Friday lunchtime in London. Gold prices fell sharply on Wednesday following a better-than-expected ADP Employment report, a privately-produced precursor to today’s official nonfarms figure.

Gold then fell again Thursday along with the Euro, after the European Central Bank opted to leave interest rates on hold and, like the Federal Reserve a day earlier, announced no new stimulus measures.

“While this week’s price behavior highlights that investors are rather quick to get out, it’s important to remember that gold is back to levels it was trading at just last week,” says a note from UBS.

“Our more positive outlook…still stands, especially with the potential for central banks to act remaining elevated.”

The European Central Bank voted to leave interest rates on hold at a record low of 0.75% Thursday. ECB president Mario Draghi said last week that his institution would do “whatever it takes to preserve the Euro” – comments widely-taken to mean the ECB could intervene in sovereign bond markets with the aim of reducing borrowing costs.

At Thursday’s press conference however few specifics were given as to what actions the ECB might take.

“Various committees will now review the various non-standard policy options,” Draghi told reporters.

“Policymakers in the Euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination.”

Draghi acknowledged that “implementation [of such measures] takes time and financial markets often only adjust once success becomes clearly visible”, adding that governments need to “stand ready to activate [Eurozone bailout funds] the EFSF/ESM in the bond market”.

The ECB chief expressed surprise when asked whether the European Stability Mechanism, the permanent bailout fund being phased in to replace the European Financial Stability Facility, should be granted a banking license to enable it to borrow from the ECB and this leverage the planned €500 billion lending capacity the ESM will eventually have.

“I have said at least twice,” replied Draghi, “that the current design of the ESM does not allow it to be recognized as a suitable counterparty [for the ECB].”

Responding to a question about ECB Governing Council member Jens Weidmann, president of Germany’s Bundesbank, Draghi agreed that Weidmann and the Bundesbank “have their reservations about programs that envisage buying bonds”.

“Although [Governing Council members] are here in a personal capacity and we should never forget that,” he added.

“The ECB can’t just take random measures against the Bundesbank’s will,” says Alexander Krueger, chief economist at Bankhaus Lampe in Dusseldorf.

“That’s why investors are disappointed…the country with the largest economy needs to be part of any package.”

“[The Bundesbank] can talk, scream and yell, but there is not much they can do,” counters Charles Wyplosz, professor of international economics at the University of Geneva.

“Germany’s hegemony is not what it seems,” agrees Ambrose Evans-Pritchard in the Telegraph.

“The Germans are holding a gun to the head of the Latins, but the Latins are also holding a gun to German heads…they can call Germany’s strategic bluff by mobilizing their majority power on the ECB council to force reflation over a German veto.”

Benchmark 10-Year yields on Spanish bonds rose back above 7% yesterday, while 10-Year Italian yields rose back above 6% and stock markets fell.

“Draghi’s comments yesterday didn’t help investors to gauge the market’s direction,” says Zurich-based hedge fund manager Trung-Tin Nguyen.

“Hence US data are in focus today, with investors hoping to weigh whether or not further action by the Fed can be expected soon in case of worse-than-expected numbers, or, as a silver lining, to see if the US economy is recovering.”

The US Bureau of Labor Statistics is due to publish the latest Employment Situation report later today, which includes July’s nonfarm payrolls number showing how many private sector nonagricultural jobs the economy added last month.

Elsewhere in the US, “the federal government has been quietly completing an audit of US gold stored at the New York Fed,” the LA Times reports.

The Treasury Department says the results will be announced by the end of the year.

Derivatives exchange operator CME Group meantime has said it will cut its margins for silver futures contracts for the third time since February, newswire Reuters reports.

Ben Traynor

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Now Flat on a Year Ago

July 16th, 2012 No Comments   Posted in Gold

Gold in Dollars just went flat from 12 months ago. But in Euros…?

FRIDAY the Thirteenth saw the gold price in Dollars do something it’s managed only 7 times in the last 11 years.

Gold traded flat from 12 months before.

So if you bought on 13 July 2011, you hadn’t made a dime by the time New York got itself showered and brushed its teeth this morning. You held just the same Dollar-value one year later – basis the London AM Fix – at $1579 per ounce.

Between then and now, in fact, anyone buying gold to insure, hedge or speculate-to-accumulate with their Dollar savings was more than likely to have paid a higher price, too.

The gold price in Dollars has been higher than it was Friday morning on 227 trading days. All of them came after 13 July 2011. Half of them were in 2011, and the other half here in 2012. Only 25 trading days saw gold below where it stood this morning. Even Friday afternoon’s little pop to $1595 left gold in Dollars badly lagging the last 12 months’ average.

Now contrast that with the gold price in Euros today. It’s only been higher on 45 trading days. Recording a London Fix of €1300 per ounce Friday afternoon, in fact, gold has gained 16% for Eurozone buyers from this day last year.

How come? Most obviously, the Euro has of course fallen versus the Dollar. So what has been flat for US investors has risen for investors in France, Germany, Italy and the other 14 single-currency states. But what’s driven that fall in the Euro highlights both why people buy gold, and what it can help do for them when they do.

The Eurozone crisis might well worsen the economic slowdown worldwide. A true sovereign default – or exit – would most likely spark the kind of globalized panic not seen since Lehmans failed, or worse. But until then, the focus of these rising tensions is squarely inside the single-currency zone. And if you’re buying gold to insure against that kind of concern, it’s asking a lot to get insurance on other people’s localized crisis as well.

The Dollar’s rapid tumble of 2002-2008, for instance, sparked much debate and anxiety about the US currency’s role as world #1 reserve. It left Euro gold prices pretty much untouched, however, until the financial crisis – seemingly localized in the US housing and mortgage market – revealed itself to be all too international.

Again, the rising temperature in Europe today – what the World Gold Council’s Marcus Grubb calls “the ambient temperature” of what is now a permanent emergency – may well prove hot for Dollar, Sterling and Yen investors too in due course. Meantime, gold is holding near its all-time record highs for Eurozone citizens. That’s a clear sign that the ambient temperature, the background radiation, of this crisis is also dangerously strong.

What if the emergency’s focus expands to include the Dollar, or switches to the US fiscal cliff, zero-rate policy, or long-term structural bankruptcy of the fifty United States? Of those 7 occasions since summer 2001 when the gold price in Dollars has been flat from 12 months before – like it is today – then buying that dip has proven a winning trade.

The minimum return 12 months later again has been 25%. On average, buying gold when it’s gone nowhere – or slipped a couple of per cent from a year earlier – has returned 33% for US investors over the following year.

A repeat is far from guaranteed, of course. There’s always the possibility that, unlike on the 7 previous occasions shown above, the gold price has now slipped out of its bull market. And barring a sharp jump in the next two weeks, gold in Dollars will soon be so far under-water from 12 months ago, it’ll be drowning compared to the record highs of August and September 2011.

Dollar investors and savers wanting to buy bargain insurance, however, would be forgiven for thinking the financial crisis is a long way from finished just yet.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Rises But “Keeps Bearish Bias” as Beijing Investment Bucks China Slowdown

July 16th, 2012 No Comments   Posted in Gold

London Gold Market Report

U.S. DOLLAR prices to buy gold rose to $1586 per ounce Friday morning in London, reversing losses from the previous two days but leaving gold more than 2% below its level of a month ago.

“Gold has been a range trade with a bearish bias given the progressively lower highs since late February,” says the latest technical analysis from bullion bank Scotia Mocatta.

Prices to buy silver meantime climbed briefly above $27.50 per ounce Friday morning, as stocks, commodities and government bonds all ticked higher – with the exception of Spanish and Italian stock markets, which dipped following news of a ratings downgrade for Italy.

Heading into the weekend, prices to buy gold with Dollars were more or less unchanged on the week, while silver prices were up around 25¢ from last Friday.

Euro gold prices meantime looked set for a 0.7% weekly gain, with the Euro/Dollar exchange rate dipping back below $1.22 this morning.

New data from China today said the world’s second-largest economy grew at an annual rate of 7.6% in the second quarter of the year, slowing down from 8.1% in Q1, according to official GDP data.
“The expectation for weakness in the second quarter was pretty strong,” says BNP Paribas economist Ken Peng in Beijing.

Fixed asset investment by state firms however showed a 13.8% annual increase in June – up from 10.0% a month earlier – while overall fixed investment growth ticked higher to 20.4%, up from 20.1% in May.

“The investment number is the surprise,” says BNP’s Peng. “There appears to have been a significant pick-up. That is [stimulus] policy beginning to work…we are looking for a small rebound in the third quarter and a bigger rebound in the fourth quarter.”

China’s central bank has twice cut interest rates in recent weeks.

“In China,” says today’s commodities note from Commerzbank, “bank deposits are likely no longer to be nominally profitable soon, following the recent reduction of the deposit interest rate by the central bank to 3%.

“We continue to regard gold as an attractive means of protecting one’s capital against inflation…Negative real interest rates on the one hand and the high [inflation] risks on the other should lend support to the price of gold in the medium to long term.”

China has overtaken India in recent months to become the world’s biggest source of demand to buy gold.

Over in Europe, Italy managed to sell €5.25 billion  of government debt Friday, despite being downgraded last night by ratings agency Moody’s. The average yield on 3-year debt at today’s auction was 4.65% – down from 5.3% paid last month at an auction of similar bonds.

A day earlier, Moody’s downgraded Italy to two notches above junk, and one notch above Spain.

“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets,” a Moody’s statement said.

“[This] in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

In Madrid, Spain’s government could take control of budgets in regions that fail to meet deficit targets, Spanish  budget minister Cristobal Montoro said Thursday. The national government may in return help regional governments to finance themselves, though Montoro denies this would take the form of jointly-issued debt.

“This idea of hispabonds in the sense of mutualizing risk has never been on table,” said Montoro.

Germany’s government last month agreed to underwrite regional debt, and from next year states could start issuing debt for which they and the federal government are jointly liable.

Here in London, the Bank of England and HM Treasury have launched their Funding for Lending scheme, which aims to increase lending by financial institutions to the “real economy” by up to £80 billion.

Ben Traynor

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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