By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF PHYSICAL gold bullion touched a new Dollar-record on Monday – just $1.25 shy of $1400 per ounce at the start of Asian trade – before easing back as global stock markets slipped and the US currency rose on the forex market.
Japanese, Swiss and Canadian investors saw the gold price continue to rise, however, while the Euro price broke above €1000 per ounce for the time in 14 weeks.
Indian Rupee prices rose to further all-time highs, but consumer demand for gold at Diwali this weekend was “robust”, according to local dealers and international suppliers.
London’s AM Gold Fix – where the very largest bullion banks agree a price to settle their clients’ outstanding orders – today set the price in British Pounds above £860 an ounce for only the fourth day ever.
Silver prices meantime held near last week’s 30-year Dollar highs, briefly trading above $27 per ounce.
“The [Dollar] buoyancy of precious metals lasted a few minutes,” says one Hong Kong dealer in a note, “before the metals decided to follow the Euro instead.”
“November is likely to see gold prices trade above $1400 but also to experience a correction,” says the latest Precious Metals Monthly from Walter de Wet’s team at Standard Bank.
“Any dips in price, especially if they are extended in local currencies by Dollar weakness, are expected to generate physical buying and fresh investor interest. This is compounded by the fact that more central banks are appearing as gold buyers.”
Central-bank gold sales, in contrast, are “currently non-existent” says Standard, while the International Monetary Fund’s 403-tonne sale – begun with the 200 tonnes sold a year ago to the Reserve Bank of India – may have “already been completed” after Sept.’s sale of 32 tonnes.
“The [world’s monetary] system should consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values,” writes Robert Zoellick – president of development lender the World Bank – calling for some element of a return to the Gold Standard in today’s Financial Times.
Setting out a 5-step package “to address the fundamentals of growth” worldwide, Zoellick says that “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
“That is not true,” counters Berkeley professor Brad DeLong on his blog, claiming that “markets are using gold as a speculative asset and a hedge” and calling Zoellick “the stupidest man alive.”
New data released on Friday showed speculative traders in New York gold futures and options actually cut their “net long” position (of bullish minus bearish bets) for the third week running in the week-ending last Tuesday, even as gold prices rose 1.6%.
Speculative interest in gold typically grows when the price rises. But as the gold price reached a new record-high for the CFTC’s Commitment of Traders report – hitting $1351 per ounce the day before the US Federal Reserve unveiled its $800 billion QEII program – the “net long” held by non-industry speculators shrank by 1%, slipping to a 10-week low equivalent to 937 tonnes.
Known to analysts as “speculative length”, that figure peaked at 1021 tonnes in Oct. 2009. Back then, the total number of all open gold futures and options contracts outstanding was one-quarter smaller than today.
“After last week, this week looks very quiet on the data front,” says Investec Bank’s capital markets note today, with “very little on the docket ahead of Thursday’s G20 meetings London,” as a Bullion dealer notes.
Following Friday’s factory-gate inflation data in the UK – which showed a surprise jump to 8.7% for output prices – this week brings German and Chinese consumer-price figures, plus import-price and consumer sentiment from the United States.
UK debt led a dip in government bond prices on Monday, nudging the 10-year gilt yield up towards 3.0%.
Commodity prices also fell back, with US crude oil contracts retreating from a two-year high near $87.50 per barrel as the Dollar rose.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is 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
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