Alan's Finance Blog

Gold Set for Biggest Monthly Gain of C21st, But Ends January with “Lackluster” Physical Interest in Asia

London Gold Market Report

U.S. DOLLAR gold bullion prices looked set to record their largest calendar month gain this century by Tuesday lunchtime in London.

Gold prices hit $1745 per ounce – just less than 14% up on the Dollar gold bullion price set at the last London Fix of 2011.

By this measure, January 2012 looked set to record the fourth-largest calendar month gain in the last three decades, and the biggest since September 1999, the month that saw the signing of the Central Bank Gold Agreement, which limited the sales of gold bullion by signatory central banks.

Stocks and commodities also gained Tuesday, while government bond prices dipped.

“In overnight trade in Asia, we continued to see lackluster physical interest,” says Marc Ground, commodities strategist at Standard Bank.

“[There was] even some scrap gold and silver coming to market from Japanese recyclers…nevertheless, prices held steady.”

Physical volumes on the Shanghai Gold Exchange Tuesday were down 28% on the previous day.

The first day’s trading after Lunar New Year saw “strong physical demand” on Monday, according to one gold bullion dealer in Hong Kong.

Silver bullion prices meantime hovered around $33.80 per ounce – 21.2% up on the start of January.

Industrial manufacturers meantime are set to use over 15,000 tonnes of silver in 2012 – 2.5% more than last year – according to estimates by Barclays Capital. Morgan Stanley meantime reckons investors may invest in 2000 tonnes of silver bullion via exchange traded vehicles – following net selling by such investors of 1300 tonnes last year.

“Silver got hammered [following last April's peak],” says Dan Smith, head of metals research at Standard Chartered.

“Now we’re into a phase where it will do quite well…Appeal comes from its widespread use in both industry and investment. I think it’s relatively cheap.”

“The short-term investment argument is not entirely convincing,” counters David Jollie, strategic analyst at Mitsui Precious Metals in London, citing “weak industrial demand” in places like China.

Chinese silver imports in December were 36% down on their average for the last two years, customs data cited by newswire Bloomberg show.

Here in the UK, seasonally adjusted M4, the broadest money supply measure, fell 1.4% in December – its largest one month drop since the Bank of England began recording the data in 1982. The year-on-year fall was 2.5%.

Net consumer credit in November meantime fell by £377 million – the first net drop since last January and the biggest monthly fall since the data series began in 1993.

“There is clearly a risk that credit constraints may hinder the reallocation of resources required to rebalance the economy,” Bank of England governor Mervyn King said in a speech last week, adding that “there is scope for interest rates to remain low, and, if necessary, for further asset purchases [to facilitate quantitative easing].”

Eurozone unemployment meantime hit a record high last month at 16.5 million people – with the unemployment rate at 10.4% – according to official figures published Tuesday by Eurostat.

“In many cases you find firms continuing to delay investment projects,” notes Citigroup economist Guillaume Menuet.

“For those that are still making profits, hiring is being frozen, and for those which are under pressure to hit results or losing money, job losses are becoming the only solution that they have.”

Elsewhere in Europe, banks are preparing to borrow at least €1 trillion when the European Central Bank holds its 3-Year longer term refinancing operation next month – more than twice the amount borrowed at December’s 3-Year LTRO.

Greece meantime is hoping to conclude a deal with its private sector creditors by the end of the week, Greek prime minister Lucas Papademos said Tuesday. There remained however no agreement among European leaders over what to do about the deterioration is Greece’s fiscal position.

“Greece’s debt sustainability is especially bad,” German chancellor Angela Merkel said Monday.

“You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”

At yesterday’s summit leaders agreed to accelerate the implementation of the €500 billion European Stability Mechanism, the Eurozone’s permanent bailout fund.

There was also endorsement of proposed new deficit rules – although a German suggestion that the EU appoint a budget commissioner to oversee Greece’s finance appears not to be receiving wider support.

“Surveillance of Greece’s progress is normal,” French president Nicolas Sarkozy said, “but there was never any question of putting Greece under guardianship.”

Over in the US, the Commodity Futures Trading Commission, which regulates gold futures and options trading on the New York Comex, has said it is considering new rules aimed at firms using automated and high-frequency trading systems as part of its efforts to implement the Dodd-Frank legislation on financial services.

Venezuela has completed the repatriation of 160 tonnes of gold bullion – around three quarters of its total reserves  that were held in US, European and Canadian banks – newswire Dow Jones reports.

“Venezuela’s gold is now in the hands of Venezuelans, secured by Venezuelans and at the service of all Venezuelans,” said Venezuela’s central bank head Nelson Merentes.

Gold bullion makes up 71% of Venezuela’s total foreign reserves, according to figures from the World Gold Council.

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 “Still Respecting” Post-Lehman Trend, Fed Policy “Set to Support Gold”, ECB “Should Participate in Greek Debt Efforts”

London Gold Market Report

SPOT MARKET gold bullion prices dropped to $1653 an ounce Wednesday morning London time – down 1.7% from Monday’s high – while stock markets, commodities and the Euro all slid and US Treasuries gained after the head of the International Monetary Fund suggested the European Central Bank could take losses on its Greek bond holdings.

Silver bullion fell to $31.67 – down 1.8% for the week so far.

“On the weekly chart, gold is still respecting the uptrend off the October 2008 low, with key support at $1550,” says the latest report from technical analysts at gold bullion bank Scotia Mocatta.

“If the level of Greek debt held by the private sector is not sufficiently renegotiated,” IMF managing director Christine Lagarde said this morning,” then public sector holders of Greek debt should also participate in the efforts.”

The ECB – which started buying Greek bonds in May 2010 when the crisis first escalated – remains opposed to seeing its holdings of Greek debt restructured, according to newswire Bloomberg, which cited anonymous sources.

“Once again, policy makers leave the room and hope the ECB will fill in,” says Thomas Costerg, London-based European economist at Standard Chartered.

“The risk is that by putting the ECB on board, as the IMF asks, this could result in debt swap negotiations restarting from scratch, which could mean additional delay to an already over-stretched timetable.”

Debt restructuring formed part of an agreement reached last October to give Greece a second bailout worth €130 billion – without which it will be unable to pay maturing bonds worth €14.5 billion on March 20.

Over the course of Wednesday morning the Euro handed back all of this week’s gains against the Dollar.

In thin trade reflecting the absence of Far Eastern players during the Lunar New Year Week, Dollar gold bullion prices were down 0.8% for the week by Wednesday lunchtime.

“In the absence of sustained physical interest, gold is prone to a little more downside this week as bullion continues trading with global risk sentiment,” says VTB Capital analyst Andrey Kryuchenkov, adding that the US Federal Reserve looks “set to remain accommodative for now which is, as ever, gold-beneficial in the long run.”

“The Fed’s stance should continue to support gold,” agrees Marc Ground, commodities strategist at Standard Bank.

“Fundamentally, we believe that the long-term causal drivers of gold are global liquidity (defined as the Fed’s Balance Sheet plus FX reserve holdings) and real interest rates.”

The Fed will announce its latest interest rate decision later today, and is widely expected to leave its target federal funds rate within the range 0% to 0.25%. In addition, it will publish for the first time Federal Open Market Committee members’ projections for the appropriate target rate over the next few years.

“We expect the rate guidance in the policy statement to move the timetable for current accommodation well beyond mid-2013 and into 2014,” says a report from Citigroup fixed-income strategists Peter Goves and Nishay Patel.

US president Barack Obama yesterday outlined his “Buffett rule” for tax reform, which takes its name from the billionaire Berkshire Hathaway chief executive Warren Buffett.

“If you make more than $1 million a year,” Obama said, “you should not pay less than 30% in taxes.”

Obama’s address came days after Republican presidential candidate Mitt Romney disclosed that he paid 13.9% income taxes on $21.6 million of earnings in 2010. Romney disclosed his tax returns following criticism from his rival for the Republican nomination Newt Gingrich.

The UK economy meantime declined by 0.2% in the fourth quarter of 2011, official data published Wednesday show. Were the economy to shrink for a second consecutive quarter, Britain would be back in technical recession.

“[A negative growth rate]gives additional ammunition to those at the Bank of England who want to do more quantitative easing sooner rather than later,” reckons Peter Dixon, London-based global equities economist at Commerzbank, adding that the news “gives some more credence to the idea they will move in February.”

The Bank’s Monetary Policy Committee will make its next policy announcement on February 9.

“With inflation falling back and wage growth subdued, there is scope for interest rates to remain low, and, if necessary, for further asset purchases,” said Bank of England governor Mervyn King Tuesday, referring to the possibility of further quantitative easing.

The news that Britain’s economy had shrunk came a day after it was revealed that net public debt has breached £1 trillion for the first time in history.

The Bank of England’s latest survey of business conditions meantime shows spending, hiring, exports growth, borrowing and investment all weakening at the start of 2012.

Inflation in the cost of labor and raw materials eased slightly. But annual inflation in the price of imports “remained elevated” says the Bank’s summary for January.

While the Pound has stayed relatively steady against the Dollar and Euro over the last 12 months, the Sterling price of gold bullion is up more than 25% compared to this time last year.

Importers of gold bullion in India meantime are delaying buying gold following last week’s decision by the government to switch to a 2% ad valorem import tax – as opposed to the previous flat rate by weight – the Wall Street Journal reports.

Since the new tax is calculated by value, importers who delay will benefit if the price of gold subsequently falls.

High profile investor Dennis Gartman has said that while the gold bull market “is probably still extant”, he is now “neutral” on the prospects for gold bullion.

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 Touches Six-Week High as Technicals “Turning More Bullish”, Banking Sector Negotiators “Hopeful” for Agreement on Greek Debt

London Gold Market Report

from Ben Traynor

BullionVault

Monday 23 January 2012, 08:30 EST

Gold Touches Six-Week High as Technicals “Turning More Bullish”, Banking Sector Negotiators “Hopeful” for Agreement on Greek Debt

THE U.S. DOLLAR cost to buy gold hit a six-week high of $1677 an ounce Monday morning in London, as stock markets, commodities and the Euro all pushed higher and US Treasury bond prices dipped.

“Near term technical have turned more bullish [for gold],” says the latest technical analysis from Scotia Mocatta, though it sees “psychological resistance looming at $1700.”

The price of buying gold in Euros however fell to €41375 (€1287 per ounce) – down slightly on Friday’s close – as European finance ministers met to discuss Greek debt and a proposal to relax banking rules.

The difference between long contracts to buy gold and short contracts held by noncommercial gold futures and options traders on New York’s Comex exchange – the so-called speculative net long – rose for the second week running in the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission.

There was no change last week however in the volume of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world’s largest gold ETF.

Silver meantime hit $32.82 per ounce Monday morning – 1.8% above Friday’s close.

“Growing investor confidence is evident in [silver] ETF positioning,” reports Standard Bank commodities strategist Marc Ground this morning, citing ETF purchases of 341.8 tonnes in the past week.

One London broker reported Friday that the Sprott Physical Silver Trust (ticker: PSLV) bought around 311 tonnes of silver last week.

Shares in New York-listed PSLV meantime gapped lower at the start of Wednesday morning’s trade, opening 9.4% down on the previous day’s close – a result of “the instantaneous premium evaporation in PSLV,” says Gene Arensberg of GotGoldReport, which had previously warned its readers that the shares’ premium to PSLV’s net asset value could disappear “at the drop of a hat.”

“Ouch for the faithful PSLV buyers,” says Arensberg, “and shame upon the managers of PSLV for allowing the premium to get so out of whack to the upside.”

Eurozone finance ministers meantime met in Brussels on Monday, where they were expected to discuss the terms of Greek debt restructuring, with negotiations in Athens over recent days having failed to produce a deal.

“I remain quite hopeful [of reaching agreement],” Charles Dallara, managing director of the Institute of International Finance – which is negotiating on behalf of banks that hold Greek debt – said Sunday.

The IIF made an offer on Friday to accept voluntary private sector involvement that would amount to losses on Greek bonds of around 65-70%, according to press reports. Dallara described it as “the maximum offer consistent with a voluntary PSI deal”.

A sticking point is the size of the coupon on new bonds that will be swapped for existing ones. Both sides were thought to be close to agreeing an annual rate of between 4% and 4.5%, newswire Bloomberg reported.

Germany and the International Monetary Fund, however, want to see this cut to 3%, according to the New York Times, citing officials involved in the talks.

“I believe that the private sector can accept a lower coupon than the 4% average, but the question then is: will the PSI still be on a voluntary basis?” one senior Greek banker told newswire Reuters.

Any deal that is not voluntary risks triggering payments on credit default swaps – which payout in the event of default. Failure to agree debt restructuring meanwhile also risks jeopardizing Greece’s second bailout – without which it will be unable to pay €14.5 billion of maturing bonds on March 20.

Also at today’s Brussels meeting, German finance minister Wolfgang Schaeuble, along with his French opposite number Francois Baroin, will call for relaxation of banking rules, according to the Financial Times.

The pair will ask for elements of Basel III – the regulations on how much capital banks must hold, due to come into force in 2015 – to be loosened for banks that own insurance companies, such as French banks Societe Generale and Credit Agricole. They also propose a three-year delay for the deadline on disclosing leverage ratios – in contrast to UK regulators, who have called for disclosure ahead of schedule.

Baroin meantime has confirmed that France’s proposed financial transaction tax – one of the issues that led to British prime minister David Cameron walking out of European Union talks in December – will not apply to government bonds.

The US Federal Reserve meantime could make the historic move of announcing a specific inflation target when it gives its interest rate decision on Wednesday, Reuters reports.

Also in the US, Newt Gingrich – who last week said the United States should consider returning to the gold standard – won South Carolina’s Republican presidential primary on Saturday. One of his opponents, Mitt Romney, has subsequently bowed to calls to release his tax returns.

China has seen a “New Year’s rush” to buy gold to mark the Year of the Dragon, which begins today, the FT reports.

“Some customers just walk in and buy a bunch of 100g gold bars all at once,” it quotes one manager at Chines bank ICBC.

“People like to give them away…companies come in too to buy gold bars for presents.”

ICBC – the world’s largest bank by stock market cap – announced last week that 2.33 million Chinese citizens use its gold accumulation program, which currently holds 22 tonnes of gold.

Ben Traynor

BullionVault

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.

Real Risks to the Gold Price

Pending the big downturn in gold, here’s 3 near-term risks to beware…

IF YOU’VE BEEN paying attention, then you’ll remember how gold can make financial crises fun. Gold bulls were so short of things to keep them awake at night, in fact, many will no doubt be grateful for the 20% plunge of late 2011. Y’know, just to keep their hand in.

“We think the peak would be towards the end of this year or maybe some time in the first half of next year,” says Neil Meader, research director for Thomson-Reuters’ 2011 acquisition, the GFMS precious metals consultancy.

The trigger for gold’s final top and decline? “Anything that really signals to the market that the structural imbalances and the various problems affecting the strength of various currencies are moving behind us, that we are moving beyond this current financial crisis situation,” says , speaking to TheStreet after launching GFMS’s latest Gold Survey Update in New York on Tuesday.

Now, whatever you make of that risk, gold investors should perhaps be pleased to see the world’s leading data and analysis provider flagging such an event. Like pullbacks in a bull market, it can only be healthy to consider the inevitable end.

In particular, says Neil Meader, “One overt trigger that is worth looking for is the start of a serious ratcheting up of interest rates. Because, for gold investment to be popular, you do need really low interest rates.”

Of course, the risk of higher interest rates look about as high right now as interest rates themselves – i.e., zero. Even where the cost of borrowing or the return on cash is better than nothing, it isn’t after you account for inflation. And as BullionVault never tires of reminding people, it’s that rate – the real rate of interest – which really matters to the ebb and flow of gold demand in the end.

Hence the rise in global gold prices, rather than just in Dollars, over the last decade. It shows clearly in our Global Gold Index, mapped above. The GGI prices gold against a weighted basket of the world’s top 10 currencies, as measured by the size of their issuing economy. It’s risen 5-fold over the last decade, just like the S&P index of the 500 largest US corporations did in the 1990s. Unlike the S&P, however, gold hadn’t already risen 5-fold in the 15 years previous.

Still, this run cannot continue indefinitely. And pending the big downturn in gold prices apparently nailed on for end-2012 – or early 2013, or maybe a bit after, if not whenever this financial crisis is finished and things get back to what we used to call normal – here’s 3 things likely to make gold owners reach for the Valium at some point or other:

#1. Europe
Oh sure; gold offers unique insurance against default or devaluation, because it can’t be created or destroyed, and it is no one else’s liability to renege on (so long as you own it outright). Short term, however, a credit squeeze is likely to force up the Dollar and drain liquidity from derivative markets, including gold futures. Repeating the impact of Lehman’s 2008 collapse, Europe’s credit crunch in the second-half of 2011 forced the collapse of broker MF Global, further helping the speculative position in US gold futures fall in half. That’s certain to dent prices short term, even if gold investment demand for physical bar and coin is surging for fear of the political and monetary reaction.

#2. China
The middle kingdom is supposed to be an unalloyed good for gold prices. Disappointing both GFMS and ourselves by failing to take out India’s top spot in 2009, it’s likely to stand closer still as world #2 in 2012. But unlike investors here in the developed West, Chinese gold demand clearly shows a significant and positive link with economic growth – and no one yet knows how a credit squeeze or “hard landing” might affect the globe’s fastest-growing demand for physical bullion. Our guess is that tight credit and stalling income growth wouldn’t be good for gold. Beijing’s response might be, however, if 2008-2009 is a guide.

#3. Volatility
Guaranteed in 2011, volatility in gold prices still lagged US equities, but that’s small comfort if you imagined owning gold really would let you sleep through the night. Owning physical property, in law, means you escape credit, not price risk. Scarier still for retained wealth trying to hide from the storm in gold, volatility is known to dent India’s household buying, the world’s largest single source of demand. Imports fell 8% by weight in 2011, thanks to a near-collapse in the final 3 months. There’s also a plain risk that – after rising each year since 2001 – the recent whip-sawing of the gold price might dissuade Western investors, too. After all, if gold is supposed to be a “safe haven” amid any event, it failed in the second-half of 2011, even though it’s tripled during this 5-year crisis so far.

There, all that noise should help keep you awake tonight. As for tomorrow, there are plenty of other nightmares threatening your wealth elsewhere. Surging real interest rates paid to your cash savings shouldn’t be one of them.

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.

“Key Pillars” of Gold Bull Market “Intact” as Euro Banks “Rely on ECB”, Chinese Gold Saving Accounts Top 2.3 Million

London Gold Market Report

WHOLESALE PRICES to buy gold and silver with Dollars both eased back after touching new 5-week highs in London, rising 1.3% and 3.0% respectively for the week-so-far as the US currency fell further from this week’s 17-month high to the Euro.

Global equities rose for the fourth day running, with shares in Bank of America adding 6.1% in pre-market US trade after it reported better-than-forecast quarterly earnings.

Rising to a two-week high above $1.29, the Euro pushed the price to buy gold for citizens of the 17-nation currency union below last week’s finish at €41,500 per kilo.

Talks in Athens between government and investor representatives seeking to agree a 50% writedown of Greek bonds – and the interest rate on replacement debt – entered their second day.

Both the Spanish and French governments meantime raised new loans from bond investors at slightly lower interest rates than at the last time of asking, despite last weekend’s downgrade to their credit ratings.

“Momentum [in prices to buy gold] did slow in overnight Asia trade,” says a note from one London dealer, pointing to Wednesday’s late rally.

“Precious metals lacked direction again,” says another, noting how “the conflict between risk-on and risk-off trading” in financial markets is “clearly influencing the indecisive price action” in gold, silver bullion and the other precious metals.

In the commodities market today, European Brent crude oil rose to $111 per barrel after Iran’s ambassador to Washington told US television that closing the Strait of Hormuz shipping route is “an option” if Tehran suffers further international sanctions over its nuclear program.

Copper prices meantime rose to a four-month high in London, as reports from China – the world’s No.1 consumer of the metal – claimed that Beijing will delay tighter bank regulations in a bid to boost economic growth from the two-year low of 8.9% seen at the end of 2011.

“Investors should look at China,” says John Smolinski, manager of the US$2.8 billion TD Canadian Equity Fund, now rebuilding his positions in base-metal and other commodity producer equities.

“Yes, the economy is slowing, housing prices are going down, the level of construction is slowing. But that’s probably a good thing. At some point the government officials should get comfortable enough and start easing [credit supply], and that should be good for commodities.”

Figures from ICBC – the world’s largest bank by stock-market cap – said Thursday that 2.33 million Chinese citizens now buy gold through its gold accumulation savings account.

Launched in April 2010, the program currently holding 22 tonnes of bullion. Comparable schemes in Japan reached 0.7 million accounts at their peak, according to Bruce Ikemizu, manager of Standard Bank Tokyo.

“The Chinese really love gold,” said ICBC’s deputy head of precious metals Shi Xudong to reporters today.

“The fact that the government has started to clean up the gold market is favorable to our business,” he added – pointing to this month’s ban on all but two officially recognized Shanghai exchanges for trading gold futures contracts.
Looking more globally, “Gold’s key pillars of support remain intact,” reckons a research note today from Barclays Capital here in London, “ranging from central bank buying to negative interest rates and rising longer-term inflationary pressures supporting investment demand.”

Interest rates on UK government bonds fell Wednesday to fresh all-time lows as debt prices rose, knocking the 10-year gilt yield down to 1.92%.

Consumer price inflation in the UK last month dipped to 4.2% per year, according to official statistics. Bank deposit interest rates have now been negative – after inflation – since May 2008, costing savers 2.5% of their money in real purchasing power during 2011.

Total UK debt – including government, corporate, consumer and banking – rose to 507% of annual economic ouput in 2011 according to new research released Thursday by McKinsey analysts, up from 310% a decade ago and higher than any other major economy including Japan.

Over in the Eurozone, “The EFSF [stability fund] losing S&P’s top credit rating proves in my opinion that there are limits to solving the crisis,” said German Bundesbank president – and ECB voting member – Jens Weidmann in a speech last night.

The ECB has now bought €217 billion ($279bn) of government bonds issued by Euro member governments since May 2010.

“It is clear that Italian and Spanish mid cap [banks] have no other option than to rely upon the [European Central Bank] for their funding needs,” says a note from Morgan Stanley analysts, listing 38 banks who participated in last month’s €489 billion loan of 3-year money, quoted by the Financial Times’ Alphaville blog.

The ECB will repeat its unlimited offer again at the end of February.

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 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.

“Bullish Macro Factors” to Drive Gold in 2012 Rather than Dollar, “Ringleader of Intolerance” Germany sees Negative Growth in Q4

London Gold Market Report

from Ben Traynor

BullionVault

Wednesday 11 January 2012, 08:40 EST

“Bullish Macro Factors” to Drive Gold in 2012 Rather than Dollar, “Ringleader of Intolerance” Germany sees Negative Growth in Q4

SPOT MARKET gold prices rose to a one-month high of just under 1647 per ounce Wednesday morning – a 5.1% gain for January – before easing back as the Dollar rallied on the currency markets.

The gold price in Euros meantime touched levels not seen since December 8, hitting €41,502 per kilogram (€1290 per ounce), while the Euro currency fell to 15-month lows against the Dollar following disappointing German growth data.

The previous day saw spot market Dollar gold prices break through their 200 day moving average, which yesterday sat at $1626.86 per ounce by PM London Fix prices.

“The move higher today was not expected as it was against a bearish picture,” writes Russell Browne, technical analyst at bullion bank Scotia Mocatta, adding that “it will take a number of days of closes above the 200 day moving average to give the bulls confidence to re-enter the market.”

“While the Dollar may not see a significant correction soon,” says a note from Societe Generale, “and is likely to continue to gain against the Euro as the Eurozone crisis persists, the negative effects of a stronger Dollar on gold are likely to be largely diminished in 2012, allowing the bullish macro drivers to dictate price action once again.”

Silver prices meantime rose to $30.31 per ounce – level with the week’s high and 8.6% up for the month so far – before they too eased back, while stocks and commodities ticked lower and major government bond prices gained.

Germany’s economy shrank by 0.25% in the fourth quarter of 2010, newswire Reuters reports, citing an official from the Federal Statistics Office. For 2011 as a whole, gross domestic product grew at 3.0%, down from 3.7% a year earlier, official data show.

Growth in the Eurozone meantime was half that initially reported in Q3, European Union statistics agency Eurostat now says, after revising Q3 2011 growth from 0.2% to 0.1%.

“Germany cannot isolate itself so easily from tensions within the Eurozone,” says Joerg Zeuner, chief economist at VP Bank in Liechtenstein.

“In addition the export sector is facing a difficult period given the fall in global demand.”

“The best resolution [to the Eurozone crisis]…is that Germany take steps to reverse its trade surplus,” argues Beijing-based economist Michael Pettis.

“[However,] countries that run large and persistent trade surpluses never seem to understand that their surpluses are mainly the consequences of domestic policies that generate additional domestic growth by absorbing foreign demand.”

Italian prime minister Mario Monti has called for more support from the European Union ahead of a meeting in Berlin today with German chancellor Angela Merkel.

“I am demanding heavy sacrifices from Italians,” he tells German newspaper Die Welt.

“[Unless] concrete advantages become visible…a protest against Europe will develop in Italy, including against Germany, which is seen as the ringleader of EU intolerance, and against the European Central Bank.”

Almost the entire €489 billion the ECB lent to Eurozone banks at last month’s 3-Year longer term refinancing operation has been redeposited with the central bank reports news agency Bloomberg, citing estimates from Barclays Capital made using ECB data.

“It’s illusory to think that the [3-Year LTRO] will translate into credit generation,” says Philippe Waechter, chief economist at Natixis Asset Management in Paris.

“It will assuage some of the anxiety banks have regarding their liquidity needs. But they’ve engaged into a massive overhaul of their strategy and shrinkage of their balance sheets, which is, coupled with the deteriorating economy, not compatible with increasing credit.”

Authorities in Iran meantime have blamed Israel for a car bomb that killed a nuclear scientist in Tehran.

Also in Iran, local press reported yesterday that officials had denied rumors that the authorities were blocking any text messages that contained phrases such as ‘Dollar’ or ‘foreign currency’. The imposition of US sanctions has reportedly led to increased interest in holding gold and Dollars as a hedge against Rial depreciation.

Gold bullion dealers reported strong demand from India on Wednesday, Reuters reports, as the Rupee rallied 1.5% against the Dollar to hit a one month high. The weak Rupee saw record domestic gold prices in India last year, weighing on demand during what is traditionally a strong season for buying gold.

China meantime imported a record volume of gold from Hong Kong in November, according to official data. The Hong Kong government’s Census and Statistics department reports that just under 102.8 tonnes of gold were imported by China, equivalent to 18% of China’s total private sector gold consumption in 2010 by World Gold Council figures. Imports from Hong Kong are generally regarded as a proxy for overall imports.

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

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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Gold Up 5% on Week in Euros as “Recession Data” Hit Europe, US “Can’t Decouple” from Eurozone Crisis Despite Positive Jobs News

THE DOLLAR cost of buying gold hovered around $1620 an ounce Friday morning London time – becoming a bit more volatile following the release of US employment data but failing to establish a definite direction – while stocks and commodities edged higher.

Silver prices meantime eased around lunchtime, hitting $29.15 per ounce.

On currency markets the Dollar rallied – pushing the Euro down further – after the nonfarm payrolls release showed the US economy added 200,000 private sector non-agricultural jobs in December.

The US unemployment rate fell from 8.7% in November (revised up today from 8.6%) to 8.5%.

From its high above $1.30 on Tuesday, the Euro meantime has since fallen 2.5% against the Dollar.

By Friday lunchtime the price of buying gold in Euros – which touched a 4-week high of €40994 per kilo (€1275 per ounce) looked set for a weekly gain of over 5%.

The Dollar cost of buying gold meantime was headed for a weekly gain of around 3.6%.

“A close above the 200 day moving average at $1632 is needed to shift the market [for buying gold] to Neutral from Bearish,” reckons Russell Browne, technical analyst at bullion bank Scotia Mocatta.

“While gold is pushing towards its 200 day moving average at $1633, we are not convinced that it can sustain a break above this level yet,” adds Standard Bank commodities strategist Walter de Wet.

“Liquidity remains locked up as the European interbank market continues to malfunction…in the physical market, we continue to see steady buying of gold. But this demand is more likely to provide support for gold on dips below $1600 rather than push it substantially higher.”

Friday’s Asian trade saw demand for buying gold in physical form, according to one Shanghai trader.

“Liquidity is back in the market,” said the trader.

“With the Europe outlook still grim, investors would prefer to put their dollars in some safety assets, such as gold.”

In the US, however, the volume of gold to held to back shares in the world’s largest gold ETF, the SPDR Gold Trust (GLD), has not changed since before Christmas.

This contrasts with the world’s biggest silver ETF, the iShares Silver Trust (SLV), where steady outflows since the middle of last month has seen the volume of silver bullion held fall to its lowest level since September 2010.

“We expect silver demand to slow during [2012],” says the latest precious metals note from French bank Natixis, citing “reduced investment demand alongside the current weakness in global industrial demand.”

“There have been good data out of the US,” said Jeremy Friesen, Hon Kong-based commodity strategist at Societe Generale, speaking ahead of today’s nonfarm payrolls release.

“But ultimately the US can’t decouple from the European crisis…there are going to be enough reasons to be worried about global growth and the financial system in the next quarter or two, and gold should benefit from that.”

German factory orders fell 4.8% between October and November last year, Bundesbank figures published this morning show.

Retail sales for the 17-nation Eurozone as a whole meantime fell 2.5% in the year to November – compared to a 0.7% y-o-y drop to October – according to official European Union data, while the European Commission’s economic confidence indicator hit its lowest level in over two years last month.

“This data has recession written all over it,” says Martin van Vliet, Eurozone economist at Dutch bank ING.

A report in French newspaper Les Echos suggests the governments of France, Belgium and Luxembourg are considering fully nationalizing Dexia. The three governments pledged last October to guarantee for a decade €90 billion of the bank’s loans, nationalizing its Belgian division.

In Switzerland meantime Phillip Hildebrand, head of the Swiss National Bank – which last year pegged the Swiss Franc to the Euro – has refused to resign after it emerged that his wife bought US Dollars three weeks before the peg was announced.

Here in the UK – where the Pound this morning hit a 15-month high against the Euro – oil company Shell has announced it will close its final salary pension scheme, the last FTSE 100-listed company to do so.

The Sterling price of buying gold hit £1052 per ounce Friday lunchtime in London – 4.6% up on the start of the week.

Hungary’s leader Viktor Orban has expressed support for central bank governor Andras Simor as the government prepares to renew negotiations with the International Monetary Fund and the European Union over a possible bailout. The IMF and EU last month walked away from negotiations after Orban’s government refused to repeal new legislation seen as threatening the central bank’s independence.

Ben Traynor

BullionVault

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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.

Safe Haven Status “Returning to Gold” as Euro Sinks After Weak Bond Sales, Banking Stock Slump

London Gold Market Report

WHOLESALE MARKET prices to buy gold touched a two-week high at $1625 per ounce as London opened for business on Thursday, before pulling back to $1609 as commodities and world stock markets fell, led by Eurozone banking shares.

The 17-nation Euro currency fell to its lowest level in 16 months vs. the US Dollar.

Prices to buy gold and other precious metals had remained “well bid throughout” Asian trade on Thursday said a note from a Hong Kong dealer.

“Jewellers were restocking [and] demand was good in southern India,” says bullion merchant Chanda Venkatesh of CapsGold in Hyderabad, speaking to Reuters and citing a southern Indian festival.

“Jewelry demand for gold is pretty good,” agreed another dealer, but added that the price for gold futures holders to ‘exchange for physical’ (EFPs) fell hard overnight, possibly ahead of bullion sales due to New Year rebalancing in the big commodity-tracking investment indices.

“Gold appears at present to be living up more to its status as a safe haven again,” says a note from Commerzbank, citing “geopolitical risks” in Western sanctions against Iran, plus the ongoing Eurozone debt crisis.

In Iraq today, at least 50 people were killed in a series of bomb attacks, extending the death-toll since US troops pulled out in mid-December, while protests over rising fuel prices in Nigeria, the world’s 10th largest oil producer, were broken up by police.

Base metal and other commodity prices fell hard, but European crude oil contracts pushed higher to $113 per barrel despite the rising US Dollar.

Silver prices fell back 3% from a 3-week high at $29.70 per ounce.

“[Wednesday] saw gold finally beginning to break away from trading in step with risk assets,” said one London dealer this morning.

The correlation between gold prices and the VIX volatility index of daily movement in US equities – positive during most of 2011 – recently fell to its most negative reading in two years, notes Reuters Technical analyst Wang Tao.

“We believe that gold prices will recover in 2012, and we maintain our bullish posture,” says HSBC analyst James Steel, despite cutting his average forecast for this year from $2025 per ounce to $1850 this week.

Eurozone investors looking to buy gold today saw the price touch 3-week highs above €40,000 per kilo as the single currency slumped on the forex market to its lowest level against the Dollar since Sept. 2010 at $1.28.

Priced in British Pounds, gold briefly rose this morning above £1040 per ounce, a 2-week high first breached on the way up in August 2011.

“The UK is attractive to international investors because it is outside the Eurozone,” reckons John Wraith at BofA Merrill Lynch, commenting on the strongest foreign-investment demand for UK government debt on record set in Oct. and Nov.

Continued demand has since driven 10-year gilt yields down to 120-year lows below 2.00%.

But “If [the UK's] economic conditions deteriorate further,” says Wraith, “that could prompt a sell-off due to stubbornly high deficits.”

After Wednesday’s auction of €5 billion in new German Bunds drew demand of €5.3bn – only just improving on November’s technically failed €6bn auction – a new sale of French government  debt today met 1.6 times enough demand, sharply down from the 3.0 bid-to-cover made by investors last month.

Banking stocks dropped sharply across Europe, led by a 14% plunge in UniCredit as Italy’s largest bank priced a €7.5 billion shares rights issue fully 43% belowWednesday night’s close.

French bank Société Générale said today it is considering 1,580 jobs cuts at its investment banking division. In the same sector, Royal Bank of Scotland – now 83% owned by the British state – is weighing up to 10,000 job cuts, says the Financial Times, after being told by UK chancellor George Osborne to “scale back risky activities.”

The Mediterranean region of Valencia in Spain has meantime delayed repaying a €123 million loan to Deutsche Bank by at least 1 week, says the Wall Street Journal, while the Hungarian Forint today sank to a fresh all-time low against the Euro after Budapest scaled back a planned 12-month debt auction by more than one-fifth in the face of weak demand.

“We are very near boiling point in Hungary,” said SocGen analyst Benoit Anne in a note Wednesday, “with a crisis that may escalate into something much more serious than a simple macroeconomic crisis.”

Hungary must refinance almost €5bn of foreign debt in 2012, and is due to start repaying a 2008 loan from the International Monetary Fund (IMF) in February.

“Thousands of Hungarians have taken to the streets in protest at the country’s new constitution,” reports the BBC, under which the ruling Fidesz Party – now with only an 18% approval rating – has been accused of raising ethnic tensions with neighboring states, favoring itself in future elections, and compromising the central bank’s independence.

Adrian Ash

BullionVault

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The #1 Fund Manager to Beat Financial Crisis: UK Edition

How a lump of gold bullion beat the City of London’s brightest and best since 2007…

HOW QUICKLY time flies! The global financial crisis will mark its 5th birthday in 2012.

And now it’s out of short trousers, let’s see who coped best with the terrible toddler so far, starting with the City of London’s top fund managers…

Many analysts and advisors will rightly tell you to beware chasing yesterday’s winners. But physical bullion has proven to be uniquely suited to this financial crisis so far.

Over the 5 years to mid-December, gold bullion priced in Sterling returned 218% net of ongoing storage costs. Physical silver rose 175% after storage costs.

The best-performing UK-domiciled fund available to retail investors returned 120% over the same period, including dividends and ongoing fees. Funds in the best-performing sector, Greater China, averaged just over 70% growth.

Those China equity funds cost an average maximum of 4.6% in upfront charges. Buying gold or silver on BullionVault costs a maximum 0.8% in dealing fees.

So why gold and silver – so far, at least – for UK investors and savers since 2007…? Because they are physical property, rather than anyone else’s financial promise, gold and silver cannot go bust, unlike Britain’s ailing banks or even neighboring governments across the Channel. Silver and gold bullion are also rare and tightly supplied, unlike the flood of money from the Bank of England, franctically trying to prop up the UK’s banking system.

So despite all the experience and expertise of the UK’s fund management industry, in short, you would have done much better buying silver or gold on the eve of this crisis than entrusting your savings to the City.

US comparison to follow on Friday.

Adrian Ash

BullionVault

“Weak Dollar and Physical Demand” Could Support Gold, “Awkward” Announcement “Will Highlight Fed Uncertainty”

“Weak Dollar and Physical Demand” Could Support Gold, “Awkward” Announcement “Will Highlight Fed Uncertainty”

THE SPOT MARKET gold price ticked down to below $1600 an ounce Wednesday morning – having earlier touched its highest level since before Christmas at $1612 – while stock and commodity markets also edged lower as the US Dollar looked to have ended its recent spell of weakness.

The previous day saw the gold price gain over 2.5% in thin trade, with the Dollar falling against other major currencies on Tuesday – before easing as Asian markets reopened.

“Gold surrendered some gains overnight as Asian participants engaged in light profit-taking,” says Marc Ground, commodities strategist at Standard Bank.

“Key [gold price] resistance…lies at the $1630 level which represents the 200 day moving average,” says Russell Browne, a technical analyst at bullion bank Scotia Mocatta.

“We believe that while the 200 day moving average holds, the risk remains for another visit to the $1523 area.”

The silver price fell to $29.05 per ounce – a 3.8% gain for the week so far – having hit $29.78 earlier in the morning.

Record trading volumes were reported on the Shanghai Gold Exchange Wednesday – following a New Year holiday yesterday – with less than three weeks to go before Chinese Lunar New Year on 23 January.

“The physical demand side of things will be the big factor helping to take prices back up again, along with Dollar weakness,” says Daniel Smith, commodities analyst at Standard Chartered in London.

This morning however the Dollar rallied against the Euro, with the latter dropping back below $1.30.

The US Dollar Index meantime – which measures the US currency’s strength against six other major currencies – crept back above 80, a level it climbed to last month, having dropped below 73 earlier in 2011.

In India meantime, the federal cabinet has approved legislation that could lead to hallmarking of gold jewelry, which is currently done on a voluntary basis, being made mandatory.

“Hallmarking can boost investment demand in jewelry form,” says Prithviraj Kothari, president of the Bombay Bullion Association – which today predicted a 48% quarter-on-quarter fall in Indian gold imports in the first three months of 2012.
“Currently purity concerns deter many consumers from buying jewelry.”

The latest World Gold Council figures show Indian gold jewelry demand accounted for 14.6% of global demand for gold bullion in the third quarter of 2011.

“Our physical sales to India yesterday were about double average levels,” says a note from UBS precious metals strategist Edel Tully.

India’s gold imports fell by 56% year-on-year in the final quarter of 2011 – a period in which Rupee weakness contributed to record high domestic gold prices– according to BBA data published Monday.

“The key factor in this market right now is not purely the gold price, but stabilization in the Rupee,” adds UBS’s Tully – who was today announced one of the winning analysts in the London Bullion Market Association’s 2011 precious metals Forecast.

Tully was the closest of 24 precious metals analysts who 12 months ago predicted the average gold price for 2011 (she forecast an average gold price of $1550 per ounce – the actual average came in at $1572).

All of the 24 analysts polled underestimated by how much the gold price would move last year. The biggest predicted range – the gap between the high and low for the year – was $555, while the actual range came in at $581.

Over in the US, the Federal Open Market Committee – which decides Federal Reserve monetary policy – will start publishing members’ projections for future interest rate decisions, the latest FOMC minutes show.

“This is a complete 180-degree shift from the old mysterious-institution approach,” reckons Ethan Harris, New York-based co-head of global economic research at Bank of America Merrill Lynch.
“It’s a bit awkward – you’re going to reveal to the public how much uncertainty the Fed itself has about where it’s going.”

The price of WTI crude oil held above $102 a barrel Wednesday morning, as Iran threatened to close the Straits of Hormuz in response to US and European sanctions.

“With 40% of the world’s internationally traded oil moving through the Strait of Hormuz,” says HSBC analyst James Steel, “even a low probability of the strait’s closure…can have a material impact on oil and hence on gold prices.”

“Gold may not be a safe haven in financial turmoil,” adds Nick Trevethan, senior commodity strategist at ANZ Bank, “but it does seem to function as a safe haven against real-world geopolitical risks.”

Ben Traynor
BullionVault