By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF BOTH gold and silver was little changed against the US Dollar by Thursday lunchtime in London, evening out amid “a very choppy and volatile market” according to one dealer.
Asian equities closed the day lower, failing to pick up yesterday’s 1.2% gain in US stocks.
European shares rose towards 6-month highs, however, as crude oil held steady above $82 per barrel and base metals rose.
“Traders [overnight] took advantage of the dip in gold prices and short-covered,” says a Hong Kong dealer, but the resulting rallies were “minimal and short-lived.”
“This is a very indecisive market struggling with two opposite forces,” says Swiss refiner MKS’s finance division – “long liquidation and bargain-buying.”
Over on the currency market the Dollar rallied but the Euro rose faster, hitting $1.4050 – and also jumping to a 6-month high vs. the British Pound – after US Treasury secretary Tim Geithner told the Wall Street Journal that the world’s major reserve currencies are “roughly in alignment” but the Chinese Yuan is “undervalued by any measure”.
The gold price thus slipped further in Euros on Thursday morning – briefly dipping to a two-week low beneath €30,850 per kilo – but recovered from an early dip versus the Dollar, Sterling and Japanese Yen.
Preparing for this weekend’s G20 summit of leading economic powers in Seoul, “We would like countries to move toward a set of simple norms on exchange rate policy,” said Geithner, inviting trade-surplus nations “to put a little more flesh” on their plans for helping the global economy to “rebalance”.
New data today showed Japanese industrial activity contracting in Sept., while Germany’s manufacturing and service sectors both expanded sharply.
Berlin today raised Germany’s forecast GDP growth for 2010 to 3.4%.
UK Retail Sales meantime showed their second monthly fall in succession, and new mortgage approvals also fell.
Raising bank-deposit interest rates to 2.5% on Tuesday, Beijing overnight reported a slight slowdown in China’s GDP growth for the July-Sept quarter., slipping to 9.6% year-on-year from 10.3%.
China’s rate of consumer-price inflation rose to 3.6% last month, the official statistics agency added, with nine-tenths of the rise driven by food and housing costs according to a spokesman.
“Today’s [US] data flow could have a significant impact across the precious metals complex,” says Standard Bank’s London team in a note, “with gold and silver particularly vulnerable” to any signs of improvement.
US consultancy Medley Global Advisors said Wednesday that the Federal Reserve will create $500 billion over the next 6 months, using the money to buy Treasury bonds and so push longer-term interest rates lower still.
“We believe that a gold price of $1350 is consistent with $500bn of quantitative easing,” says Standard.
“Whenever you print money, people look for a refuge – gold,” said financial author and money-manager Jim Rogers, former hedge-fund partner of George Soros, in an interview last week.
“If the central bank prints enough money,” he joked to CNBC this morning, “the [Dow Jones index] could go to 50,000 but we’d all still be losing money in stocks, because the money would be worthless.”
US Treasury bonds were little changed as the start of New York trading drew near on Thursday, but the rise in UK gilts continued from yesterday’s coalition government “austerity” budget review.
Ten-year gilt yields fell as prices rose, dropping towards August’s record-low of 2.92%.
“The risk of renewed quantitative easing makes Sterling a sell,” says a note from UBS analysts, after UK chancellor George Osborne told the BBC that his new austerity budget has “some caution built in to it, and there is of course the freedom for the Bank of England to deploy monetary-policy tools as well.”
In sharp contrast, German chancellor Angela Merkel yesterday called for central bankers to “be thinking about exit strategies” from current liquidity support.
“The spread [for ‘swap’ rates between gilt yields and German Bunds] is the widest since the advent of the Euro,” notes Lloyds TSB’s currency strategist Adrian Schmidt, thanks to UK interest rates falling as Euro rates hold steady.
Wednesday’s UK money-supply data “showed an all-time low rate of growth,” he adds – quoted by the FT‘s Alpha blog – and the Bank of England’s latest minutes “showed a vote…and some sympathy for the idea of QEII.”
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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.