By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF BOTH gold and silver bars fell hard against the Dollar in London on Thursday, dropping to 1-week lows – as did the single Euro currency – after the Moody’s rating agency downgraded Spanish government bonds and China reported a surprise trade deficit for Feb.
Brent crude oil dropped more than $2 per barrel. World stock markets lost over 1.2%, with London’s FTSE-100 falling to a 5-week low.
“Uncertainty over Euro negative news is outweighing general financial stress, which should be gold positive,” says one London dealing desk.
“There has been no change in physical [gold] market activity,” says James Zhang at Standard Bank, “which remains lacklustre even though prices have moved lower.
“With no news on developments in the Middle East-North Africa region, most investors are waiting on the sidelines.”
Here in London on Thursday, the Bank of England voted to leave UK base rates unchanged, pegging them at a record low of 0.50% for the 25th month in succession – the longest stretch of unchanged rates since the two decades of 2.00% starting in the depths of the 1930s’ Great Depression.
Lagging the cost of living at the worst pace since 1978, real interest rates are now delivering a net loss of 4.5p in the Pound to cash savers per year.
Over in Beijing, meantime, the People’s Republic today posted a trade deficit equal to $7.3 billion for last month – the biggest deficit in 7 years.
“It could be just a blip,” says a note from IHS Global Insight in London, with many other analysts also pointing to Feb.’s long Chinese New Year holidays and gift-giving festivities.
“[But] China would have run a surplus of $16 billion over the first two months of the year if commodity prices were unchanged from a year ago,” counters Mark Williams, senior economist at Capital Economics.
A net importer of gold despite now being the world’s No.1 mining producer, China saw 200 tonnes of demand during Jan. and Feb. according to an estimate from Swiss bank and bullion market-maker UBS.
Gold imports totaled 209 tonnes between Jan. and Oct. last year, the Shanghai Gold Exchange said in Dec. – a rise of more than four times from the same period in 2009.
In silver bullion, China exported a net 1,075 tonnes as recently as 2006, but it imported nearly 3 times that much in the first eleven months of 2010 alone, according to customs’ data.
“Changes in net Chinese imports appear to be closely correlated to longer-term price movements in the silver market,” noted David Jollie at Mitsui recently.
Back in Thursday’s action, “There are short-term traders and investors who want to reap profits after the rally,” said Seoul-based trader Chae Un Soo at KEB Futures to Bloomberg today.
“Losses will be limited as there’s an enormous interest in gold and precious metals.”
Asian trading saw the market “[run] out of ideas to push the metals either way,” says a Hong Kong dealer in a note.
Silver prices in London today bounced higher from $35.12 per ounce – some 4.5% below Monday’s new 31-year high.
The gold price bottomed at $1418 – just shy of the then-peak prices hit 3 times between Nov. and Dec. last year, and 1.9% below this week’s new all-time high.
Versus the Pound Sterling and Eurozone single currency, in contrast, both gold and silver were unchanged for the week by lunchtime today.
Less than a week after downgrading Greek government debt yet again, the Moody’s agency this morning nudged Spain’s credit rating lower, citing “high funding requirements, not only for the sovereign but also for the regional governments and the banks.”
“We are surprised that Moody’s has taken this decision before knowing the details of the [Bank of Spain’s] report on the recapitalization of the Spanish financial sector,” said Treasury director Soledad Nunez to Reuters.
Government bonds including weaker “peripheral Europe” rose in price as stock markets fell, however, nudging interest rates lower even on Spanish debt, where 10-year yields ticked back down to 5.50%.
France meantime became the first country to recognize Libya’s opposition party, the NLC, as the oil-producer state’s legitimate government.
The International Red Cross today called the on-going conflict a “civil war”, while Nato chiefs planned a meeting to discuss enforcing a ‘no-fly zone’ above Libya to prevent further air strikes by Gaddafi loyalists.
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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