By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD rose above $1418 per ounce late Friday in London, reversing the last of this week’s 2.4% drop as crude oil fell and world stock markets rose again after Gaddafi regime in Libya announced an immediate ceasefire, prompted by the United Nations’ “no fly zone” agreement overnight.
Joint G7 intervention in the forex market by Japan, the US, UK, Germany, France and Italy knocked the Yen down 6.3% from Thursday’s new all-time highs of ¥76.25 per Dollar – its fastest fall since the post-Lehmans’ chaos of late 2008.
Major-economy government bonds slipped back but 10-year US interest rates held at 3.30%.
New data on Thursday showed US consumer prices rising 5.50% at an annualized rate in February.
“Real interest rates have been dropping like a stone again,” says the commodities analysis team at Standard Bank, pointing to a new 7-year low in inflation-linked US bond yields.
Interest-rate futures now put the chance of a Federal Reserve hike by New Year 2012 at barely 1-in-5, down from better than 1-in-3 at the start of Jan.
“Furthermore, we view the Bank of Japan [vowing] to pursue powerful monetary easing and continue to pursue ample liquidity as bullish for gold,” says Standard, forecasting $1500 per ounce once “seasonal weakness in the physical gold market” is over.
“The end of Q1 and Q2 typically see gold scrap volumes increase, which is likely to subdue the gold price.”
More than 30 people were meantime reported killed in Yemen after the army opened fire on protesters after Friday prayers. In Bahrain, the British government advised UK nationals to quit the Saudi-oilfields neighbor immediately.
Authorities in Japan today raised the Fukushima distract radiation alert one notch. The New York Post reported that airport detectors in Dallas and Chicago were triggered by passengers arriving from Tokyo.
“A disruption to the Japanese economy will damage demand for precious metals from the electronics and other high-tech sectors of what is one of the world’s most advanced economies,” says the latest Commodities Weekly from French bank and bullion dealer Natixis.
Japan’s electronics sector accounts for some 3% of total global gold off-take each year, says Natixis.
“Japanese consumers are also significant buyers of luxury items, with demand for gold and other precious metal jewellery likely to suffer from any hiatus in Japanese consumption.”
Tokyo’s Nikkei stock index continued to rally on Friday, cutting this week’s losses to 10.1%.
Primarily destined for industrial use, meantime, silver bullion also ticked higher but held 2.3% lower from last week’s record-high Friday finish vs. the US Dollar.
The sharp drop in the Yen currency drove the price to buy gold back up towards last week’s finish for Japanese investors.
The gold price in both Canadian and Aussie Dollars ended the week near 2011 highs, trading 1.3% and 2.2% from last Friday respectively.
Only the Swiss Franc and Euro price of gold stayed significantly lower – down 2.5% and 1.4% respectively from last weekend.
“Peripheral [Eurozone] rates on five-year CDS [bond insurance] have risen since the beginning of the month,” notes Natixis, “in part influenced by further downgrades to Spain and Portugal.
“But the price of gold denominated in Euros has dropped by €36/oz over the same period” – a switch from the close correlation between Eurozone CDS and gold prices seen since early 2010.
Rumors claimed on Friday that the European Central Bank was actively buying Portuguese government bonds once again, in a bid to drive market yields down from this month’s new records above 7%.
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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