By: Ben Traynor, BullionVault
London Gold Market Report
DOLLAR gold bullion prices raced back through $1800 an ounce late Thursday morning London time – coming within 0.3% of last Wednesday’s record high and gaining 3.5% for the week so far.
“To keep momentum going topside we need to achieve fresh highs, otherwise selling pressure will emerge,” reckon technical analysts at gold bullion bank Scotia Mocatta.
But “the external environment has turned increasingly fertile for gold,” say Barclays Capital analysts.
Silver bullion prices by contrast saw range bound trading around $40.40 per ounce – though this still represents a 3.4% gain since last Friday’s close.
The latest gold demand data suggest “increasing acceptance” of higher gold bullion prices, the World Gold Council reckons, while on the supply side Venezuelan president Hugo Chavez has moved to nationalize gold production.
Stock and commodity markets meantime sold off, while US Treasury bonds gained and the Dollar rallied 0.6% against the Euro after London opened.
“The Dollar is also being preferred as there are reports of funding stress and as a loss of risk appetite sees investors make a scramble for the Dollar,” says Chris Walker, currency strategist at UBS.
Wednesday saw an unknown bank approach the European Central Bank for US Dollar credit of $500 million – implying that other banks were unwilling to lend it Dollars at the prevailing market interest rate.
The anonymous bidder borrowed Dollars from the ECB at 1.1% –the market rate was around 0.88%.
On Thursday meantime investment bank Morgan Stanley cut its global growth forecast for this year to 3.9% – down from 4.2%, adding that both the US and Europe are “dangerously close to recession”.
“Recent policy errors, especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling, have weighed down on financial markets and eroded business and consumer confidence.”
On the currency markets the Swiss Franc plunged nearly 1% against the Euro overnight –hitting a low of €0.8714 – prompting speculation that the Swiss National Bank, which has repeatedly said the Franc is “massively overvalued”, has been active in the market.
“Given the comments from the SNB in the last week this would seem very likely,” says Steve Barrow, currency analyst at Standard Bank.
“We still have our doubts…whether such action can help stabilize Euro/Swiss at these higher levels over the longer-term…and as we fear that the Eurozone debt crisis will get worse, still we still believe that Euro/Swiss is at risk of another move back down to the parity region.”
The Swiss Franc gold price rose to SFr1440 per ounce Thursday morning – 5.9% up for the week so far.
The gold price in Yen, meantime, rose to ¥138615 per ounce – a 3.4% gain for the week so far.
Earlier this month the Japanese authorities intervened in an attempt to halt the Yen’s rise on the currency markets. On August 4, the Dollar gained 2.9% against the Yen, hitting ¥79.18. This morning, however, the Dollar was back down around ¥76.60, roughly its level before the intervention.
On the international bullion markets, India and China accounted for 54% of all gold bullion demand in the second quarter of 2011, according to the latest Gold Demand Trends, published today by the World Gold Council.
Total gold bullion demand fell quarter-on-quarter in both countries – although Indian demand for gold bars and coins bucked this trend.
Worldwide gold investment demand – which includes demand for gold ETFs as well as gold bars and coins – grew 18% compared to Q1, though investment was down 37% year-on-year.
On the supply side, recycling of gold was “fairly subdued” the report notes, coming in at 429.3 tonnes, a 3% fall on the same period last year.
“This modest result is particularly interesting given the record price levels reached during the quarter…a number of factors appear to be behind the decline in recycling activity, including increasing acceptance of higher price levels.”
In Venezuela meantime, Socialist president Hugo Chavez announced plans Wednesday to nationalize the country’s gold mining industry, likening those that run it to “the mafia”.
“We can’t keep allowing them to take it away.”
Chavez also ordered the repatriation of $11 billion of official gold bullion reserves held in central bank and commercial vaults outside Venezuela, including a reported 99 tonnes held with the Bank of England.
Venezuela holds a total of 365.8 tonnes of gold as official reserves, according to WGC figures. Of that, 211 tonnes is believed to be held abroad.
Ben Traynor
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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