By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD rose new all-time highs vs. a falling US Dollar on Monday morning in London, hitting almost $1445 per ounce as European stock markets held flat and major-economy government bonds slipped, nudging interest rates up.
Crude oil rose to new 29-month highs as more rebel-held town’s fell to Libyan forces loyal to Colonel Gaddafi.
“If we do see tension escalating further, then we could witness a new high in gold,” reckons Ong Yi Ling at Phillip Futures in Singapore.
“Besides Libya, I think investors will also be looking at other countries within the West Asia. For example Saudi Arabia.”
The Euro currency meantime broke above $1.40 for the first time since November, despite the Moody’s ratings agency today downgrading Greek debt again, citing “considerable difficulties with [tax] revenue collection” after Athens’ government-bond yields jumped and default-insurance costs touched almost 10.5% per year in the CDS market on Friday.
The rising Euro capped the gold price for German, French and Italian investors, holding it shy of last week’s two-month highs at a price of €33,130 per kilo.
Following the European Central Bank’s threat to raise its interest rates next month, “All of the Euro-area’s excessive [private-household] leverage is in the periphery,” says a chart from Credit Suisse analysts – posted by the FT‘s Alphaville blog – that shows Portugal and Spain with 220% household-debt-to-GDP ratios, and Ireland at 320%.
“Most of that leverage is in floating rate debt,” the report goes on, calling the ECB’s new-found “inflation vigilance” a “token gesture”.
“Because there is still a $1.2trn shortfall of deposits in Europe…it is critical that the ECB continues to provide ample liquidity,” says Credit Suisse’ global equities team.
“Indeed, over the past 18 months when the ECB suggested it would reduce its liquidity provision, we have typically seen sharp escalations in Euro tensions.”
Here in the UK, the Bank of England will keep its interest rates below the rate of inflation for the 15th month running at Thursday’s meeting – the longest of negative real rates since 1978 – but Bank governor Mervyn King “feels very sorry for the victims of inflation, especially savers,” says an interview with The Telegraph.
“[The] sharp squeeze in living standards…is deeply troubling for them,” he told the paper. “They were prudent before the crisis.”
Rising 29% over that time, the gold price in Sterling today touched new 8-week highs at £887 per ounce, even as the Pound rose against the Dollar.
Over in the New York gold futures market, “Gold doesn’t seem crowded yet, although for the [platinum group metals] the current speculative interest seems acute,” says the latest analysis from Walter de Wet at Standard Bank in London.
“This leaves platinum and palladium especially vulnerable to shifts in market sentiment.”
Latest data from US watchdog the CFTC show that, in the week-ending last Tuesday, the “Net Long” position of bullish minus bearish bets on gold futures held by speculative, non-commercial players rose by 7% to 890 tonnes equivalent.
Previously shrinking by more than 25% for the third time in 12 months, the speculative net-long position has now recovered its previous level in just 8 weeks.
Recovering the Net Long’s drops in Jan. and July last year took 16 and 15 weeks respectively.
“We think the physical demand from Asia in particular, particularly from China and India, will continue to underpin the gold market outlook,” said J.P.Morgan metals strategist Michael Jansen on Sunday at the opening of the 2011 Prospectors and Developers Association of Canada (PDAC) convention in Toronto.
“[But] we are a little bit concerned about the signs of some fault lines emerging in the market,” he said.
“We have received a lot of feedback at the significant wholesale investor level, or the big macro funds, and they are generally starting to pull back their exposure to gold and get more exposure towards equities.”
“We see equities emerging from a multi-year funk and moving into a two or three year bull market. And that obviously reduces the need for a portfolio hedge like gold.”
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 World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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